Virgin Australia sharpens its knives as it sells 10 % stake to Singapore Airlines

John Borghetti, CEO at Virgin Australia Holdings Ltd.

John Borghetti, CEO at Virgin Australia Holdings Ltd.

Virgin Australia Holdings Ltd. announced on the 30th of October that it sold a 10 percent stake to Singapore Airlines Ltd. The company announced two other deals as well. Virgin Australia, the Australia’s No. 2 carrier, is sharpening its knives as recent deals are aimed at threatening Qantas Airways Ltd., which has been a leader of the Australian aviation market for over a decade.

Virgin – Singapore alliance

According to a statement released by Virgin Australia Holdings Ltd., Singapore Airlines Ltd. will spend approximately $108 million on the deal regarding the acquisition of a 10 percent stake in the Australian carrier. The alliance between Virgin Australia and Singapore Airlines followed the information on a possible cooperation between Qantas Airways and Emirates Airlines which was announced back in September. Recently global airlines have been increasing cooperation as a result of growing fuel prices and tough competition.

Analysts believe that Singapore Airlines Ltd., which is the second biggest airline in the world, decided to enter the alliance with Virgin Australia Holdings Ltd. to minimize the risk posed by Qantas Airways in the Asia’s aviation market. Peter Esho, an analyst with City Index, noted: “Qantas’ ambition to become a premium player in the Asia Pacific aviation market is meeting some stiff resistance, most notably from other key players in the region like Singapore Airlines.” He noted that the Singapore Airlines’ alliance with Virgin Australia was aimed at backing the Qantas Airways’ main rival in the Australian aviation market.

The acquisition of a 10 percent stake in Virgin Australia Holdings Ltd. gives both parties potent links between aviation markets of Australia, China and India, not to mention the rest of eastern and northern parts of Asia.

Other deals

John Borghetti, chief executive officer at Virgin Australia Holdings Ltd., informed also about two other deals. Along with the sale of a stake in the company, Virgin Australia acquired approximately 60 percent of Tiger Airways Australia and launched a takeover offer for Skywest Airlines as well.

According to a statement, Virgin Australia Holdings Ltd. would buy a 60 percent stake in Tiger’s Australian operations for approximately A$35 million. As it was highlighted by Koay Peng Yen, chief executive officer at Tiger Airways Holdings, the deal with Virgin Australia Holdings Ltd. would allow the Austrian business to fly on international routes within the region.

In addition, Virgin Australia Holdings Ltd. also announced a A$99 takeover offer for Skywest Airlines, which operates in regional Australia and Southeast Asia. The Virgin Australia’s takeover offer for Skywest Airlines is made up of 22.5 cents in cash and 0.53 shares in Virgin Australia Holdings Ltd. for each Skywest’s share.

Analysts believe that the debate about ownership of local airlines is to re-open as a result of Virgin Australia’s deals. Certainly Virgin Australia’s deals are considered an aggressive attack on the position of Qantas Airways Ltd.

John Borghetti has been transforming Virgin Australia Holdings Ltd. since he took over in 2010. He aims to threat the dominant position of the Australia’s No. 1 carrier, Qantas Airways. Due to the change of the company’s structure, the investments of Singapore Airlines and Etihad were possible and Virgin Australia poses a risk to the Australia’s No.1 carrier. John Borghetti believes that the recent investments show that investors have confidence in the company’s strategy. Undoubtedly, Virgin Australia is currently chasing the Australia’s No. 1 carrier all over the world as it offers premium and low costs options for its passengers.

Richard Meryn
Richard Meryn, Associate Editor Industry Leaders Magazine (www.industryleadersmagazine.com)

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