Grant Bradley

Aviation, tourism and energy writer for the Business Herald

Virgin squares up against Qantas

Deal with Singapore Airlines part of growing industry equity alliances to counter competition and fuel costs.

Virgin Australia - 20 per cent owned by Air New Zealand - has stepped up its offensive against Qantas with a series of announcements that sees it solidify its partnership with Singapore Airlines, take a majority ownership of an Australian low-cost carrier and buy outright a regional carrier serving the mining industry.

Under the series of deals, Singapore Airlines will pay A$105 million ($132 million) for a 10 per cent stake in Virgin Australia, allowing the Australian carrier to buy 60 per cent of budget carrier Tiger Australia.

That airline is 33 per cent owned by Singapore Airlines. Virgin will also buy Perth-based Skywest, which competes with Qantas in the fly-in, fly-out market for mining workers.

Virgin Australia has over the past year stepped up competition in the corporate market against Qantas, and its buy into Tiger pits it firmly against Jetstar in the no-frills sector.

Virgin Australia chief executive John Borghetti said the transactions were part of his airline's strategy to become the airline of choice in all markets.

"Singapore Airlines had been an important strategic alliance partner of Virgin Australia, and we are very pleased to have their support as an investor," he said.

"We believe this investment demonstrates their confidence in our strategy and it enables Virgin Australia to fast-track its growth plans."

Air New Zealand last year built up a 19.9 per cent stake in Virgin Australia to give it a slice of the domestic market across the Tasman and allow better connectivity and capacity management across the Tasman.

Middle Eastern airline Etihad has also taken a 10 per cent stake in Virgin Australia, whose shares have rallied by more than 60 per cent this year.

The moves are part of growing equity alliances among airlines as they battle more competition and high fuel costs.

Last month struggling Qantas announced a global partnership with Emirates to improve its links to Europe and allow it to cut loss-making, long-haul routes and focus on its profitable domestic flights and budget airline Jetstar.

Borghetti said the Tiger deal allowed Virgin Australia to access the budget market and enabled Tiger Australia to grow, "providing greater competition to this important market segment".

The domestic plans require regulatory approval.

Craigs Investment Partners analyst Chris Byrne said Singapore's buy-in to Virgin reflected the growing move by airlines to create stronger ties rather than looser arrangements such as code shares.

"Everyone is looking to consolidate those relationships, and equity investments bed these down. Air New Zealand has shown the way - they've done very well out of their relationship with Virgin."


The deals

*Singapore Airlines buys 10 per cent in Virgin Australia.

*Virgin buys 60 per cent of the existing shares in Tiger Australia.

*Virgin will buy all of regional carrier Skywest.

- NZ Herald

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on production apcf03 at 22 Oct 2014 18:40:42 Processing Time: 424ms