AVCJ Awards 2017: Operational Value Add: Great Southern Rail

Luxury services, cherished cultural icons and companies with extremely longstanding staff are all areas where attention to perception has to be considered with the utmost delicacy. When Allegro Funds decided to rebuild Australia’s Great Southern Rail (GSR), these factors combined into a layered set of opportunities and challenges.  

Managing impressions internally meant careful consultation with staffers that, in some cases, had been with GSR for most of their lives, including one employee with 52 years of service. Meanwhile, the planned transition from straightforward passenger train to high-end tourism cruiser meant that there would be a range of new performance expectations from customers.

The first reputational challenge, however, involved the broader public reaction, especially since GSR specializes in traveling deep into the outback. The iconography around Australia’s hinterland is almost untouchably sensitive cultural material, and if a new player is seen as disrupting that heritage, the backlash could be fierce.

Nevertheless, the arrival of budget airlines across the past couple of decades has made crisscrossing Australia by rail virtually obsolete. GSR tried to adapt, but its roots as a government dependent service did not translate into savvy commercial strategy. Allegro therefore began by helping to clarify the needed conceptual redirection.

“Over time, the number of people taking the train and the government subsidies reduced. To offset that, the business started to go down this luxury pathway, but it wasn’t doing it properly because it was straddling two strategic positions,” explains Adrian Loader, a managing director at Allegro. “A transportation business wants customers to get to the destination as fast as possible while a tourism business wants them to stop along the way and explore the environment. Those two models don’t reconcile.”

Turnaround time

Allegro acquired GSR from UK-based Serco in May 2015 when the company’s financials were faltering and attempts to attract strategic buyers drew minimal interest. Serco was undergoing a restructuring at the time, and Allegro was eager to meet the vendor’s needs in order to secure the deal. As a result, compensation was understood to have included a substantial amount of liabilities and a cash component of less than A$5 million ($3.8 million).

Three months later, GSR confirmed that the government was cutting off A$9 million in annual fare concessions, increasing pressure on the imperative to evolve the business model. The services to be revamped included three routes: the Ghan between Adelaide and Darwin; the Indian Pacific between Sydney and Perth; and the Overland between Melbourne and Adelaide.    

“We came up with a new strategy that was all about providing great experiences to people who want to see central Australia, which is difficult to navigate because of the lack of roads and people,” says Loader. “The plan had nothing to do with the train. In fact, the train wasn’t mentioned at all – it was very much a customer-focused transformation.”

By early 2016, GSR had demonstrated that it could flourish without government funding and was charting significant earnings growth. It increased its revenue per return journey by 40% in 2016 to A$827,000 and a further 15% in 2017 to A$953,000. Late last year, Allegro exited the company to Quadrant Private Equity, generating a deal multiple of 25.1x and an IRR of 960%.

It was the first exit from Allegro’s A$180 million second fund. Marcus Darville, a managing partner at the Quadrant, said at the time that that GSR was well placed to benefit from a growing trend toward experiential travel by domestic and inbound leisure travelers.

Value-add efforts under Allegro included the implementation of a new enterprise resource planning system and the same train reservation system used by global competitors like Belmond, operator of the Orient Express. Additional improvements included the use of longer trains to reduce trip frequency and increase profitability. This coincided with a slashing of discounting programs, a retendering of legacy contracts, and a hike in the advertising budget to include media outlets such as Qantas Magazine, Lonely Planet and Prestige. 

Meanwhile, Allegro leveraged its tourism experience with Adelaide-based Discovery Parks, a company with 60 holiday park locations nationwide for which the GP claims to have dramatically reduced debt and increased EBITDA. Both investments made customer experience their primary performance metric by pursuing a net promoter score (NPS) strategy.

NPS calculations provide in a singular measure that is used to assess a project’s commercial viability on a scale of 1 to 100. For example, a strong score in the hospitality industry would be in the mid-60s at most. Allegro aimed to be a world leader in this index with the launch of a new GSR itinerary, the Ghan Expedition, which went on to achieve an NPS of 86.

Brand awareness

One of the main practical challenges was the fact that GSR under Serco had operated under a shared services model, with no in-house IT, finance function or human resources capacities. Executing a rebuild under the guidance of NPS indicators therefore meant bringing in fresh talent in a range of senior management positions. This included recruiting a new CFO and COO, as well as introducing operating partners such as Anouk Darling, a consultant at DNA-LAB Investing Strategic & Creative Capital.

“We knew we had to get the brand off people’s bucket lists and on their to-do lists,” says Darling, who has served on the boards of both GSR and Discovery Holiday Parks. “We had to create emotional engagement and unique experiences. Research shows that connecting with others and creating shareable moments is important. It’s not about sitting on trains and seeing Australia, it’s about sharing that journey and experiencing Australia.”

Changes implemented under this philosophy included making the pricing of GSR tours all-inclusive. The idea is that passengers will respond more positively if they needn’t worry about making additional payments for meals, drinks and activities along the way.

Winning over customers emotionally was also a matter of style. Some A$70 million has been spent on GSR fleet refurbishment in the past eight years, but under Allegro, sprucing up carriages became more of a wow-factor ploy. Most notably, these efforts included the unveiling of a “platinum club” lounge car, which was nominated this year for the Australian Interior Design Awards.

Architectural and consulting practice Woods Bagot was hired to add glamor to the interiors by echoing the aesthetics of the landscape along the track. Colors and materials were selected to match the mood and contours of Australian vistas, while adjustable lighting and window treatments aimed to maximize the functional flexibility of a limited space depending on the time of day.

Other detailing includes deep buttoned banquettes in earth-tone leathers, stone tabletops, brass fittings and upholstered seating. Sheer curtains are integrated into discrete ceiling light fixtures. 

“There was a lot of focus on quality of experience because we knew that getting the details right would create a great customer experience and also create hero shots that potential customers want to see when they’re making up their minds,” says Loader. “We would have discussions about our vision and image ranging from the logo and ads right down to what type of wine glass we were going to have on the tables. The glasses have to have a good feel, but they can’t be too tall because the train rocks. That level of detail is important.”

Ultimately, one of the most critical design details proved to be as much about GSR team morale as impressing customers. On the occasion of a company Christmas party, staff enthusiastically received new uniforms designed by quintessentially Australian clothing outfitter RM Williams. GSR CEO Chris Tallent dramatically punctuated the event by emphasizing the importance of recognizing heritage during the transition.  

“That was such a powerful moment, and it was from that time forward that people really embraced the changes inside the business,” says Loader. “That enabled the cultural transformation, and it was just wonderful to be involved in something like that.”

Darling also credits Tallent as a fervent and committed leader during the transition, addressing everything from the minutia of “branding expressions” to deeply integral cultural issues around staff engagement, training and consultation. During this process, the idea of creating narratives around personal experiences emerged as an important component of pivoting the GSR team.

“When there are significant service expectations and more focus on guest experience measured through NPS, some staff opted out,” Darling says. “However, for the main, they approached the new direction with passion and vigor. The brand launch was their stories – about their lives on the train and connecting with guests.”

Sharing on a personal level also proved to be a major part of the customer experience thesis, especially in the context of repositioning hallowed touchstones of Australiana such as the Ghan and the Indian Pacific.

“[These brands] have equity and a meaning in the mind of the market,” Darling adds.  “To change the timber of that meaning requires cut-through and compelling emotional engagement, and this is best done through storytelling – neuroscience has proven it activates a different part of the brain. We currently live in a world where there is message overload. I refer to it as the inattention economy – the brain filters out unwanted communications.”

Silver lining

From the beginning, this approach of immersive, interactive and narrative engagement was deliberately channeled at a more affluent customer base of over-55s. Fitting creature comforts were therefore introduced, including separate lounge and a-la-cate dining facilities, en suite bathrooms, private transfers at the start and end of the journey, and a 24-hour concierge service.

Off-train excursions, including visits to historical sites, bonfires in the desert and stargazing, were likewise curated with a view to being simultaneously accessible and adventurous. “Dirty boots and fine wines” was the mantra. Allegro knew that combining comfort with memorable embellishments was the key to generating the needed buzz among Australia’s restless retirement set. This is because luxury rail is a bigger ticket item than most tourism businesses, putting more pressure on achieving perfection in service offerings.

“The reason the whole operational program succeeded was that people would experience the train journey and then go back and tell their friends about it,” says Loader. “If they give it a thumbs down, you know that 200 people will never do it. But if they give it a thumbs up, a few of their friends might do it.”

Demographics were also part of the value-add plan from a cultural point of view since marketing to older generations played into themes around interest in local history and cultural identity. Although Australia is an overwhelmingly urban nation, the mystique of the wide open spaces is a critical part of the collective id and by extension a primary demand driver for businesses like GSR.    

Loader notes that his firm’s due diligence for the company revealed a substantial amount of free publicity in the form of radio chatter and general social interest in the products on offer. From an operational value-add point of view, this scenario made Allegro’s work largely a matter of conjuring the right ambiance and giving an escapist public what it always wanted. 

“Customer surveys for the business were actually quite positive even before we made our changes, and I think that’s because people wanted to believe in the train and the great Australian outback,” Loader says. “Capturing that feeling and making it the heart of the experience and marketing was really the key to the whole turnaround.” 

Pictured: Johan Krynauw (left) of Allegro Funds receives the Operational Value Add award from Alvarez & Marsal's Oliver Stratton

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• Topics
• Australasia
• Trade sale
• Buyouts
• Consumer
• Australia
• Allegro Funds
• AVCJ Awards