Airlines' battle for big bucks heats up

With its new Club lounge at airports, Virgin is taking on Qantas in the fight to lure the corporate and government flyers.

Tucked away in a discreet location in terminal two at Sydney Airport is a door marked ''private''. It is the gateway to the Club, offering a sanctuary for a select few.

Inside, away from prying eyes, the lounge features a la carte menus, personalised service, luxury facilities and escorts to take members to the terminal gates.

In short, those invited to Virgin Australia's hidden lounge in the domestic terminal are schmoozed like no other passengers.

The Club represents the latest battleground between Australia's warring airlines, Qantas and Virgin, and is being played out entirely behind closed doors as they try to woo chief executives, chairmen and government ministers. Big bucks are on the line.

Unlike their other battles to secure passengers, this is one the airlines are not willing to divulge any details on.

Opened without notice, the Club is Virgin's answer to Qantas' invitation-only Chairman's Lounge.

Virgin has quietly opened another Club lounge at Brisbane Airport's domestic terminal, while three more - in Melbourne, Perth and Canberra - will be completed in the coming months. They are aimed squarely at prying loose Qantas' grip on the lucrative business and government travel market.

The Club lounges have the potential to be a clincher in senior executives' decisions on which airline to choose for their companies' multi-million-dollar travel accounts.

''It is the deal breaker for whether a customer will go with Qantas or Virgin,'' an industry veteran said.


Jamie Pherous, the chief executive of Corporate Travel Management, says his company has seen ''people make irrational commercial decisions based on'' a Qantas Chairman's Lounge membership.

''Usually your highest volume and highest average ticket-price customers are your senior management at companies,'' he says.

''The Qantas Chairman's Lounge system is an incredibly powerful tool, so you would expect Virgin doing the same thing would assist them in getting buy-in from senior management on decisions to appoint Virgin as their primary provider.''

Apart from offering the finest international wines and food, a drawcard for members is the chance to rub shoulders with other chief executives, deal makers, political powerbrokers and A-list celebrities.

Of course, the airlines are not going out of their way for the rich and powerful without expectations of a sizeable return.

The invitation-only lounges are crucial sales tools for Virgin and Qantas.

The airlines use a variety of criteria to choose members. One rule of thumb is that companies need to have the potential to generate about $1 million in revenue for the airlines before they will be invited in. The highest number of frequent-flyer points or status credits in Australia will not ensure an invitation to become a member of the Chairman's Lounge or the Club.

''The criteria are pretty strict in terms of the travel you have to spend and the size of the company you manage,'' Pherous said. ''It is well geared for people who have a profile who don't want to be seen. It is a privilege to be part of that membership.''

Virgin chief executive John Borghetti personally signs off on every invitation for the Club, just as Qantas chairman Leigh Clifford does at Australia's largest airline. Before he left Qantas in 2009, Borghetti's role as third-in-charge of the airline included oversight of the Chairman's Lounge.

Borghetti wants to keep the membership small - understood to be in the low thousands.

Pherous says the absence of the invitation-only lounges as part of Virgin's operations until now may have been a ''roadblock'' to it winning large corporate accounts.

''It can be a pretty powerful tool. Borghetti wants to chase corporates and part of that process to enhance the corporate delivery is the frequent flyer, the partnerships, the in-flight product and the lounge system,'' he said.

A large number of the business people who have already become members of the Club are from the financial centres of Sydney and Melbourne, while only a handful come from cities such as Brisbane.

One of the golden rules is to limit the membership.

Industry veterans say Ansett and Qantas had been too willing in the past to grant access to the high-end lounges. ''[Ansett's co-owner] Peter Abeles would upgrade anyone - he gave it out like bubble gum. John [Borghetti] is very careful with how the list is made up,'' one said.

Qantas will not reveal the size of membership of the Chairman's Lounge. The often-quoted figure is 7000 members but some insiders say it is considerably higher.

The Qantas Chairman's Lounges are at airports in every capital city apart from Darwin and Hobart. They sport fine wines, food of similar standing to fine restaurants in CBDs, fine surroundings and luxurious furnishings.

''It is not just the lounge, it is more the fact that you are the top echelon customer and usually get better looked after in everything. It is like having your own concierge,'' Pherous said.

''They tend to know you by name … it is quite a privileged status within the airlines. It is an invitation everyone is gagging to get.''

Like its arch-rival, Virgin will not comment on the Club lounges in any way. The airlines know that the secrecy helps to add to the allure of the invitation-only lounges.

And not to forget that many chief executives and chairmen who make their way into these high-end lounges want to keep their access discreet, too.

Ultimately, it is about keeping the most valuable customers loyal to a brand.

''It is a strong part of a value proposition - like frequent flyer is for the average traveller,'' Pherous said. ''This is for the high-end corporate and, after all, it is the high-end corporate where the airlines make all their money - they are the ones doing a lot of volume travel but at a higher ticket price.''

While Virgin has made inroads into the corporate travel market since it set about reshaping itself two years ago, the battle with Qantas will become harder from here on.

''What they are trying to do is replicate what is successful at Qantas to give them the best chance of competing,'' Pherous said.

Another airline executive said: ''The battle for corporates has just begun.''