Courtesy of Airlines.Net news line.
Clouds gathering around Virgin's Australia dream
by LACHLAN COLQUHOUN
Executives running Virgin's bold foray into Australia's domestic air market have been outwardly unruffled by the recent manoeuvrings of Singapore Airlines, but their new partner's latest move Down Under could prove a body blow to the start-up.
Singapore Airlines this week raised its stake in Air New Zealand from 8% to 25%, bringing to S$360 million (£133.8 million) its investment in the Kiwi carrier this month.
For Virgin, the implications of the deal are not in New Zealand or on any of the Pacific or European routes flown by Air New Zealand but in Australia, where the main game is the lucrative domestic market, dominated by BA's 25% interest Qantas and second-ranked Ansett.
In the past year, Air New Zealand first acquired 50% of Ansett from declining Australian transport group TNT, now part of the Dutch KPN empire, and then paid Rupert Murdoch's News Corporation A$580 million (£218 million) for the rest of the company.
With 25% of Air New Zealand - and possibly 40% if the New Zealand government agrees - Singapore Airlines now has a presence in Australian domestic skies through Ansett, and has no need to participate in a risky and expensive Virgin start-up which many observers believe will struggle to stay airborne.
It is clear that Singapore Airlines has two strategies in place. One is a global focus through its 49% stake in Virgin Atlantic and the other is very much located in its own patch of the Asia-Pacific, where it already code-shares with Ansett on some international routes.
The split is even enshrined in a condition of the Air New Zealand deal, with the now Singapore-domiciled Brierley Investments Limited - which reduced its stake to accommodate Singapore Airlines - saying there would be no Singapore Airlines-Virgin tie-up in Australia.
'As part of the agreement, and for as long as BIL holds not less than 5% of Air New Zealand, Singapore Airlines has agreed that it will not join Sir Richard Branson or any corporation associated with him in setting up an Australian domestic airline,' said the BIL statement accompanying the deal.
Virgin is faced with the prospect of its 49% stakeholder not only not assisting in an important start-up but also effectively changing sides and becoming a competitor.
The company has always said that Virgin Atlantic and the Australian venture are entirely separate, and has even held out the possibility of listing Virgin Australia locally and floating off part of the company. Virgin's Australian chief, Brett Godfrey, has been publicly relaxed on the Singapore Airlines question.
He has said his group has deep pockets, has been fending off Australian fund managers wanting to get involved and has no need of Singapore Airlines participation.
Some analysts, however, dismiss this as putting a brave face on losing Singapore Airlines as a partner in Australia, where its help would have been invaluable. Not only does Virgin face Qantas and An-sett but a new and credible third airline, Impulse, has taken off with the help of institutional inves-tors such as AMP.
Impulse has promised to match Virgin's fares and its no-frills formula. While it does not have the brand cachet of Virgin, it has the advantage of already being airborne after moving to the capital-city routes from its inception as a regional carrier.
Despite problems with access to terminals, most notably in Melbourne, Virgin still ambitiously aims to take off in time for the Olympics in September. A final name for the airline is set to be announced this month.
As it taxis for the runway, however, Virgin has a daunting array of competition which is even stiffer after this week's defection of its Singaporean partner.
© Associated Newspapers Ltd., 27 April 2000
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