Adrian Schofield

It is hard to escape the conclusion that the fortunes of Australia's two major airlines are moving in opposite directions at the moment. While Qantas can only hope it has bottomed out after a traumatic 12 months, Virgin Australia is on the rise as it capitalizes on a successful strategic realignment.

Their contrasting trajectories are highlighted by recent annual earnings reports, which saw Qantas record its first net loss in 17 years and Virgin Australia rebound into the black. While Qantas canceled orders for 35 Boeing 787-9s, Virgin Australia is evaluating an order for either 787s or the Airbus A350. Stark differences can also be seen between the two airlines in their domestic and international strategies.

Virgin Australia CEO John Borghetti views the latest annual results as a vindication of the former low-cost carrier's move to broaden its scope. It has introduced domestic business class to attract corporate and premium traffic, and signed a range of strategic alliances that have boosted its long-haul offerings without expanding its international fleet.

The carrier achieved a net profit of A$22.8 million ($23.5 million) for the fiscal year through June 30, an improvement of A$90.6 million from the previous year's loss. The first phase of the carrier's realignment brought revenue diversification, and “the next phase will be driving earnings growth, driving good returns” from the changes it has introduced, says Borghetti.

On the international side, Virgin Australia has formed strategic partnerships with Air New Zealand, Delta Air Lines, Singapore Airlines and Etihad Airways. Each arrangement is aimed at providing access to a different international market. The success of this approach is demonstrated by a 158% increase in interline and code-share revenue over the last fiscal year.

In comparison, Qantas's much larger international division lost about A$450 million during the fiscal year. This is partly due to the difficulty in competing against the giant Middle Eastern and Asian airlines with Qantas's own flights (AW&ST Aug. 27, p. 42). It is now following Virgin Australia's example and looking to partner with Emirates or another overseas carrier on some routes.

On the domestic front, both carriers are ramping up capacity in their networks. The domestic market is hot at the moment, and profits in this sector helped Qantas offset its international losses.