Jostling downunder

Photo courtesy Bloomberg

Photo courtesy Bloomberg

Underlying Air New Zealand (ANZ)`s increasing its stake in Virgin Australia to 23 per cent and thus becoming the Australian carrier`s biggest shareholder, the kiwi carrier said it was not seeking a position on the Virgin board nor was it interested in taking control of the airline.

Virgin chief executive John Borghetti was quick to check any speculations that things might change drastically as a consequence, reiterating that ANZ`s move would not in any way affect the business. He said: `I`m still going to work. Nothing changes for us. They don`t have a board seat.”

Courtesy Singapore Airlines

Courtesy Singapore Airlines

Singapore Airlines (SIA) which had only recently agreed to acquire an additional 9.9 per cent stake to add to its current shareholding of 10 per cent – making a total of 19.9 per cent – dispelled any concerns about the ANZ challenge, insisting it remains committed to the Virgin partnership and that SIA has no intention of further increasing its stake.

Billionaire Richard Branson’s Virgin Group holds a 22.4 per cent stake and Dubai’s Etihad Airways owns 10 per cent.

Is it really a round of handshakes auguring a permanent pact of peaceful co-existence among piecemeal partners which have not in recent aviation history boasted much in common except that two of them (SIA and ANZ) belong to the broad Star Alliance group? It may be the same tune that they will sing for now, to break into Qantas’ 65-per-cent hold of the Australian domestic market through the Virgin partnership, and that through this it will support its international operations. However, the collective strategy cannot disguise the individual agenda for each of these airlines, notably ANZ, SIA and Etihad.

Mr Borghetti who said “tomorrow is the same as yesterday” may soon find it cannot be so.

Courtesy wikipedia

Courtesy wikipedia

Interestingly, attention has already been turned to a likely tussle between ANZ and SIA, though both airlines have brushed aside any controlling interest. What is more interesting is how history has once again brought the two competitors together in a similar tussle for control of the ailing Ansett Australia in 1999/2000 and how SIA became badly bruised subsequently in its acquisition of a 25-per-cent stake in ANZ – a lesson that seems to have weighed heavily on the SIA in its subsequent approaches to acquisitions. Even in its stepped-up acquisition of the Virgin stake, it reflects a somewhat overly cautious step that took longer than expected.

Yet more interesting in the present situation is Virgin’s recent takeover of the Australian offshoot of SIA’s budget setup Tiger Airways. That was supposed to boost SIA’s presence across Australia. That should not change, unless Virgin changes course under new directions.

As for Virgin, it should thrive with renewed faith from its partners. Both ANZ and SIA have echoed their faith in the Australian carrier, hence their equity investments in it. But Virgin is facing tough competition from Qantas, having forecast a further slip in annual profit for the third time in five years. It has also been tardy in seeking breakthroughs internationally, much as it has boasted several commercial tie-ups with airlines such as SIA and Delta Air Lines. Something has to change, beyond the handshakes.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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