CAPA: Virgin’s Asian aspirations to be boosted by SIA exit?

10th Jul 2007

Virgin Atlantic founder, Sir Richard Branson, has confirmed he would consider buying back a 49% stake in the trans-Atlantic airline from Singapore Airlines (SIA), if the price is “fair”. SIA is reportedly considering selling the stake it acquired seven years ago for £600 million, as it pursues other options, including China Eastern Airlines.Virgin Atlantic has not been a major contributor to SIA’s earnings, nor delivered significant network enhancements, for example, with SIA acquiring a fleet of ultra long-range aircraft to launch its own non-stop services to the US (SIA’s main motivation at the time of purchase was to gain full access to the UK-US route).

But the Virgin Group has long held aspirations to expand in this region. It recently invested considerable time and effort into trying to get a foothold in the Chinese market, by establishing in Macau; the Group invested in Virgin Blue in Australia and more recently extended its own operations via Hong Kong to Australia as Virgin (Atlantic), effectively competing directly with SIA in the UK-Australia market.

Virgin Atlantic even codeshared with Malaysia Airlines (now ceased), and speculation is intensifying that Branson could be getting close to investing in another Malaysian long-haul operation, Fly Asian Express, to launch as AirAsiaX in Sep-07.

Private equity groups are perhaps the more likely buyers of the 49% share in Virgin Atlantic, with Branson expected to preserve his cash for a tilt at regaining control of Virgin Blue, when Toll Holdings decides to exit (probably sooner rather than later, as the airline’s profitable run in the domestic market comes under increasing pressure from discounting, as Tiger enters the market).

SIA’s disposal of Virgin Atlantic would also remove the impediment for Virgin Blue using the Virgin branding on international routes from Australia (SIA has veto rights on use of the brand internationally), which will have powerful ramifications in the US market, where Virgin America is closer to launching transcontinental services from San Francisco and where Virgin Blue is expected to put its first B777s from Australia. These would happily link with Virgin Atlantic’s London-San Francisco service.


But none of these changes will happen quickly enough to prevent Virgin Blue putting an ultra-low cost unit into the Australian domestic market, particularly with Tiger Airways announcing several new routes into its Queensland heartland. “Virgin Lite Blue” could be announced within weeks. And even here there could be the tantalising prospect of a bidding war between SIA (and/or Tiger Airways’ other owners) and Virgin Group for a large chunk of Virgin Blue. Wherever Sir Richard goes, life is sure to be interesting.


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