Well, BA would also claim that's the case with their fairly recent and similarly radical overhaul of their FFP (BAEC to BAC). I imagine they were advised by the same or similar American consultancy.
In Virgin's case, they sell a similar product to Qantas at a much lower cost to the consumer, so that's why they do well (after all, who wants to fly Jetstar?). In fact, in many cases they sell a superior product (737 vs Q400), so one can't be surprised they make money when seemingly everyone wants to travel.
Maybe a few less elites, I imagine, but I'm not noticing that with the crowds in the lounges at the moment. As for me, I just buy the cheapest fares on VA and will still have lounge access with my lifetime UA Platinum status. So what's not to love?