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Virgin Blue to buy 6 Boeing planes, tackle Qantas on US route

Virgin Blue to buy 6 Boeing planes, tackle Qantas on US route
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First Published: Wed, Mar 21 2007. 05 44 PM IST
Updated: Wed, Mar 21 2007. 05 44 PM IST
By Miriam Steffens/Bloomberg
Sydney: Virgin Blue Holdings Ltd, Australia’s second-biggest airline, committed to start flying to the US next year, muscling in on one of larger rival Qantas Airways Ltd’s most lucrative routes.
Virgin Blue, founded by UK billionaire Richard Branson in 2000, will buy six Boeing Co. 777-300ERs, with an option for six more aircraft, to start its international airline in 2008, chief executive officer Brett Godfrey said in Canberra. The company will also lease a seventh jetliner, he said.
Godfrey’s plan could slow profit growth at Qantas, playing into the hands of a Macquarie Bank Ltd-led buyout group that’s made a $8.9 billion (Rs38,719 crore) offer for the national carrier. Any threat to Qantas’s earnings weakens the case of investors who say the bid is too low to succeed.
“The US route alone is about 20% of Qantas’s international passenger network and in terms of revenue, it might be even bigger,” said Derek Sadubin, chief operating officer of the Centre for Asia Pacific Aviation, a Sydney-based consulting firm.
Qantas and United Airlines, a unit of Chicago-based UAL Corp, have a duopoly on non-stop services between the US and Australia. Qantas carried 73% of passengers on the route in December, according to Australia’s Department of Transport and Regional Services.
Qantas charges 38% more per km for Sydney-Los Angeles flights than on the more competitive Sydney-London route, according to a February 2006 report by Canberra-based consultants Econtech Pty for Singapore Airlines Ltd.
Long-Range Planes
Shareholders including UBS Global Asset Management and Balanced Equity Management, which together control 10% of Qantas stock, have yet to decide whether to accept the offer.
The buyout group, which includes Macquarie Bank, Texas Pacific Group and Allco Equity Partners, needs acceptances for 90% of Qantas shares to compulsorily acquire the remaining stock and delist the company. It has acceptances for 24.7%, according to a stock exchange filing on 21 March.
“If anyone thinks this will happen without affecting the share price then they have a mental problem with how the market works,” Jackson told the Australian Financial Review.
Singapore Airlines Blocked
Virgin Blue’s entry on the US route is also a blow for Singapore Airlines, which has unsuccessfully lobbied for permission to fly between Australia and the US. Transport Minister Mark Vaile said the Australian government won’t change its policy on Singapore Airlines “for the foreseeable future.”
Virgin Blue’s commitment “could be a final nail in the coffin for Singapore’s hopes on the route in the medium term,” said Sadubin.
The 777-300ERs can carry 365 passengers up to 14,500 kilometers, according to Boeing’s Web site.
Vaile said the government is in talks with US officials to determine how many flights Virgin Blue can make and which airports it can use.
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First Published: Wed, Mar 21 2007. 05 44 PM IST
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