It's better 'Down Under' Print E-mail
February 2008 Business

Stefan Pichler savors running an airline in Australia - By Jens Flottau

Once the workaholic CEO of tour operator Thomas Cook, the German executive has transformed Australian carrier Virgin Blue. He's also learned to appreciate the perks of life "Down Under."

One of Stefan Pichler's more urgent problems these days concerns the clouds he sees outside the window of his Brisbane office. Those thick, gray clouds have been hanging there for weeks now; the rain and winds have given the Australian city its worst weather in a long time and have spoiled Pichler's vacation plans. He wanted to go on a sailing trip off the coast with his friends but there was little chance of that.

It is only a few years ago that the 50-year-old executive would have hardly noticed the weather - wherever he was. He would have been too busy. Pichler then was the CEO of tour operator Thomas Cook and was considered to be Germany's most ambitious manager. So ambitious that he soon had many enemies but also a legion of fans. He was regarded as one of the primary candidates to become CEO of Lufthansa one day.

That is four years ago and it feels much longer than that. In late 2003, Pichler was fired after Thomas Cook's finances went into a tailspin. The firm was struggling with the decrease in tourism after the September 11 terrorist attacks, the emergence of low-fare airlines and its legacy structures. Also, Pichler was known for his marketing skills rather than detailed restructuring management.

After a few months looking for a new job, Pichler's phone rang. Sir Richard Branson called to ask if he was interested in joining Virgin Blue. The Australian budget carrier had just emerged from a tumultuous start-up period and was looking for more experienced management. Pichler accepted and has been working for the airline as Chief Commercial Officer for about three years.

Virgin Blue is now a multi-billion business with a fleet of more than 50 aircraft. Its business model has changed significantly. Having cast off the image of a low fare airline, it's now defining itself as a "new world carrier" − featuring good products, travelers' lounges, a frequent flyer program and assigned seating. It also serves the main airports and offers fares slightly below the established competitors but not rock bottom like Ryanair or Easyjet. The model seems to be working just fine for the airline, which almost doubled its profits last year and sees further room to grow in 2008.

This year, Virgin Blue has big plans. The airline has already expanded into New Zealand and Polynesia and now wants to go for the big money. It has ordered seven Boeing 777-300ER long-range jets and plans to start services from Australia to the U.S. in November. Pichler chairs the long-haul advisory board, an internal unit that coordinates with the management of the new subsidiary, dubbed V Australia. "The 777s are ideal for 10-14 hour routes," Pichler said. "We are therefore not only looking at American destinations but also at places like Mumbai, Delhi, Beijing and Johannesburg."

There are some strategic reasons for the initiative. First, Virgin Blue wants to "build up an irreversible market position." Relying on domestic travel only would have left the carrier vulnerable to new competitors such as Tiger Airways or Qantas subsidiary Jetstar, which mainly compete on price and could erode Virgin Blue earnings in the medium term. Also, international travel from Australia is booming now, particularly with the stronger Australian dollar, making trips abroad much cheaper. Also, the country is still enjoying GDP growth in excess of 4 percent.

While Pichler is still in charge of sales and planning and therefore has much responsibility, he can also enjoy the more relaxed Australian lifestyle. In his office, he shows up in jeans and a shirt − no suit, no tie, no company car and no driver.

And yet, all is not laid-back at Virgin Blue. The company went through several ownership changes and one more is yet to come. In 2006, its then-owner Patrick Corp. was taken over by Toll Holdings. But Toll no longer considers Virgin Blue part of its core business and would like to sell sooner rather than later. However, in sharp contrast to its latest financial performance, Virgin Blue's stock price has deteriorated significantly in the past half-year, making a secondary offering on the stock exchange highly unlikely.

Nevertheless, Toll is reportedly negotiating with three financial investors bidding for the airline and could conclude the sale of its 63 percent majority stake in the first quarter. Getting a financial investor as a new owner is worse than a sale on the stock exchange: then there will be a single large shareholder that is likely to have a strong influence on the company's positioning. But being taken over by another airline would likely have been even worse for management as that could have meant a complete shift in corporate strategy.

But continuing his current job is definitely the plan for Pichler, who denies plans to return to Germany. Though people who know him well say his future depends a lot on what offers he gets.

- Jens Flottau is a freelance journalist based in Frankfurt.

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