Singapore Airlines says no plans for Virgin Australia take-over

By David Flynn , June 24 2016
Singapore Airlines says no plans for Virgin Australia take-over

Singapore Airlines says it won't be taking up a majority stake in Virgin Australia, and would prefer that the Qantas challenger remain "independent" rather than be fully-owned by any single entity.

However, the Singaporean flag-carrier stands ready to lift its share of Virgin from a current 20.9% to 25.9% if Virgin Australia's other major shareholders – among them Chinese newcomers HNA Group and Nanshan – opt out of Virgin's $852 million capital raising.

Speculation of an SQ buyout and take-over flared after Air New Zealand announced plans to wind back its own 25.9% stake in Virgin, before 19.98% of that was sold to Chinese conglomerate Nanshan.

Read: Air New Zealand CEO says Virgin Australia alliance remains 'business as usual'

The option of Singapore Airlines taking all of the Kiwi carrier's stake, pending government approval, would have seen Virgin effectively become an Australian arm of SQ.

That's now all in the past, the airline said in a statement today.

"Singapore Airlines wishes to put on record that it has not contemplated taking a majority stake in Virgin Australia. SIA's interests in the Australian market – as well as in Virgin Australia itself – are best served through an independent Virgin Australia."

The airline predictably talked up its commercial partnership with Virgin, saying "SIA is confident of the long-term prospects of Virgin Australia and is committed to supporting its long-term growth."

That growth is likely to include Virgin Australia launching direct flights to Hong Kong and Beijing next year as part of Virgin's partnership with China's HNA Group.

Read more: Virgin Australia plans daily flights to Beijing, Hong Kong

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David

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

28 May 2016

Total posts 128

Unless these two new Chinese groups really change how VA operates, VA won't be operating for much longer. (>5 years)

SQ could have helped VA, if VA had lobbied for this it would have put them in a much better position

Qantas - Qantas Frequent Flyer

20 Mar 2012

Total posts 117

Patricka340, why do you believe Virgin won't be around > 5 years?

28 May 2016

Total posts 128

In a nutshell, they have had hundreds on millions of dollars pumped into them and they have made considerable losses. The rebranding I know is part of this but still, they have lost a lot of money. 

Now as investors realise that VA won't make anything soon they will begin to pull out (as we have seen with NZ). When all the investors have pulled out it will be too late for VA to change their direction and will run out of cash. 

I want VA to succeed but I think they will more than likely turn into Ansett II.

07 Oct 2012

Total posts 1256

Which investors??? the majority of VA is owned by airline groups and they have a say on how the company is run given their seats on the board. If they don't like things, you'll see another Luxton. If the worst case scenario came about, one of the airlines would likely move in to take over a larger share of the airline, as the Australian domestic market can be a goldmine and Australia allows foreign ownership of domestic airlines... plus strategically allowing Qantas to have a monopoly would be bad for them.

Luckily for VA, Air New Zealand is out of the equation... so they won't be there to turn it into Ansett II

28 May 2016

Total posts 128

"as the Australian domestic market can be a goldmine", I'll disagree with you there. If we go yonks back to when the domestic market was deregulated we only had two full service airlines, one of which (Ansett) folded a decade or so after deregulation. 

When QF had the monopoly the domestic market was a goldmine, and granted for QF it still is. VA on the other hand, it is not a goldmine. 

I believe that the domestic market doesn't have enought capacity for two full service airlines so it is hardly a goldmine (IMHO). Today it is a goldmine for one airline and for another it is not, I believe that nothing is going to change any time soon. 

07 Oct 2012

Total posts 1256

Yes, but currently comparing Virgin to Ansett is somewhat flawed. At Ansett's collaspse, it was plagued by old fleet and high staff wages. Virgin's cost base is still 5% less than that of Qantas... and as you know, Qantas is making money... lots of it. 

Australia also contains 2 of the busiest air routes (by PAX - top 10) in the world. It is a large country without fast rail, so I can't agree there isn't the market.

At the end of the day, we will disagree on this, but I will place more weight on the financial analysis that airlines like Singapore, Ethiad and Virgin's new Chinese friends would have done, and no doubt continue to do.

28 May 2016

Total posts 128

SQ have always wanted a foot in the Australian domestic market so hanging onto VA might be for a tad of prestige.

EY are buying lots of struggling airlines and even analysts don't know what they are trying to achieve.

At the moment it is too early to see why the Chinese groups have bought into VA.

NZ pulled out because of what their analysts said, so I think that VA is not going to make money soon. NZ probably analyse the Australian market much more deeply than the likes of SQ and EY as they have a fair bit of competition from QF, so they probably have a better idea on the outlook for VA than the other airlines. 

SQ are probably hanging onto VA 'just in case' something changes.

07 Oct 2012

Total posts 1256

On one front, SQ hanging onto VA is for prestige... but the Star Alliance bringing VA into Star is about feed for all.

Analysts have their opinions and certainly I've read plenty that have opinions on their strategy... whether it is a good one or not time will tell.

There is no dispute that NZ were not happy with VA or their management. They made that clear. But "NZ probably analyse the Australian market much more deeply than the likes of SQ and EY" are statements you cannot support with fact. 

28 May 2016

Total posts 128

Remember NZ was (can be argued has always wanted to) enter the Australian domestic market. So I believe it can be safe to say they have looked at the market deeper than SQ and EY as I do not think they would make this claim without thinking it was feasible.

Then again the same can definetly be said about SQ.

Only time will tell what happens, I don't think that we will never agree :P so over the next few years we can see what will happen.

Enjoy your weekend.

AJW
AJW

16 Nov 2011

Total posts 578

Yeah well remember SQ was the airline that wanted Ansett. However were thawed by ANZ who has first rights on the half of Ansett they didn't own. So exercises those rights in the hope SQ would invest in them to get Ansett. Never happened of course. 

31 Mar 2016

Total posts 644

hutch:

"...as you know, Qantas is making money..lots of it."

Only since last yr or FY15 but it's always interesting to read invigorating comments like this.

As recently as FY14, QF Group was AUD 2.8billion+ in the red. Most analysts believe QF Group finally returned to sustained profitability very recently mostly because of a few key elements in AJ's strategy:

1.  Tough /relentless commitment towards major restructuring overdue @ QF e.g. QF Int'l+Domestic op shut down for 2-3days by AJ in Oct11.

2.  Stopped the 'pissing match' against VA re capacity dumping in domestic mkt especially on Transcon routes to/fm PER.  As soon as AJ abandoned the infamous "line-in-the-sand" drawn by QF re its insistence on dominating domestic mkt share, QF Domestic result turned around....just in time when the global  mining mkt started its downturn and hitting the W.A. economy hard.

3.  Restructured its entire European biz to become more cost efficient+network effective thru JV with EK.

4.  Cancelled all 787 for QF on firm order in 2012(until 2015) and therefore drastically reduced near-term CapEx /debt-servicing cost.

QF making lots of $ these days has little or nothing to do with QF being intrinsically a better managed carrier than VA....it's all about adapting to major shifts in mkt dynamics.

Virgin Australia - Velocity Rewards

19 Feb 2014

Total posts 451

Virgin is here to stay.

Do you really think that Qantas would return to being a monopoly carrier, and you think the government would allow that?

28 May 2016

Total posts 128

I honesty think it is entirely possible. Why would the government care if QF is the monopoly carrier (not trying to sound aggressive with this remark, my apologies if I do).

QF can manage to be a monopoly carrier, not that it would be good for the market. As long as there is J class on CBR-SYD runs IMHO the government would probably not really care. 

I don't think the government cares enought about a monopoly market to justify bailing out VA if needs be.  

QF

11 Jul 2014

Total posts 487

Ansett folded because Air New Zealand ripped the assets from the airline

28 May 2016

Total posts 128

That was a contributing factor but Ansett was a bloated mess prior to NZ's slaughter of the airline. It was overstaffed, had an aging fleet and a very bad image in the public eye as well as some other factors which contributed to the collapse

07 Oct 2012

Total posts 1256

Exactly... and none of things are currently applying to Virgin. So, why the comparison?

28 May 2016

Total posts 128

I would argue that apart from the 737 the VA fleet is not up the scratch. 

VA have said that they are going to get rid of the e190 and reduce the ATR so that part of the fleet is not working for them.

Most people think VA need more a330's and I'm in that boat. VA should also either get rid of the 777 or expand the fleet, have a tiny sub fleet of five aircraft does not work very well on the balance sheet. 

Therefore every aspect of the VA fleet (excluding the 737) do not completly work. 

VA in comparison to Ansett, there are a few other similarities. Both had done business with NZ, both had begin to start international service a few years prior to demise (VA's planned flights to Asia) and both had service which was touch and go (either great or terrible). 

So they share some similarities :P

07 Oct 2012

Total posts 1256

Not having enough A330's and 777's for your liking, is not the same as having an ageing fleet. Fleet simpliciity and scale indeed have their benefits, but VA's fleet is pretty young.

The  international flights have been around for some time... and now they're just adding additional flights (which you seem to think is a good idea in one post, but in this post it'll lead to another Ansett??)

And the dealing with Air New Zealand link... really? 

At the end of the day, I hope for sake of consmers that you are eating humble pie in a few years.

28 May 2016

Total posts 128

Sorry, I haven't been very clear regarding VA international. 

Flights further than the Pacifc Islands and across the Tasman need to have feed on the other end to to worth the while for VA. PEK and HKG should work because they have the feed, but VA need more a330's if these services are to be operated by them and they wish to remain competitive on trancon runs.

VA international flights should go to partners hubs, if they don't I don't think it is worth VA's time.

In my above post I didn't mean to imply that I think VA shouldn't expand international I was just using it as a correlation between VA and Ansett (though it isn't a very strong indicator). 

QF

11 Jul 2014

Total posts 487

Ansett had a stronge hold on the corporate market, CEO's I know like the idea of "The Business" it reminds them of the service they received from Ansett. Also were would Qantas be today without the merger of TAA. I have never ever seen a banker run a business for expansion, it's always contraction to save a buck.

AJW
AJW

16 Nov 2011

Total posts 578

No they folded because News Limited failed to spend money on them in the 90's and Air NewZealand was silly enough to buy them without the cash to properly invest in Ansett. 

Qantas - Qantas Frequent Flyer

09 Feb 2015

Total posts 303

ask yourself how much Qantas were losing for many years and now after a solid restructuring program has put them well and truly back on track to a positive future.

28 May 2016

Total posts 128

True- But QF weren't being given hundreds of millions of dollars from its investors

Qantas - Qantas Frequent Flyer

09 Feb 2015

Total posts 303

I believe we will have four major airlines as currently stands with stability once all the dust has settled, but it will take a few years.

28 May 2016

Total posts 128

I assume you mean QF, JQ, VA and TT as for the four major airlines. I would like to see them all survive but I think by the time the dust has settled we will have lost VA (and TT, if VA drag them down with them).

31 Mar 2016

Total posts 644

"...being given hundreds of millions of dollars from its investors."

And we should add that in the case of VA, every 1 of them, upto and including 2 latest ones from China, is a willing investor  whom hv voluntarily given $ to VA even after full access to the financial records & projections of VA plus no doubt a full briefing by Borghetti re his costly but grand longterm strategy(i.e. the corp code word for "forget about any profit in the short term").

A strange desire by large airlines to burn cash thru a smaller one?  I doubt it's that simple...

31 Mar 2016

Total posts 644

"Unless these two new Chinese groups really change how VA operates..."

1 of these 2 already changed VA's network plan drastically re its Asian ops starting from 2017.  Today=DPS +codsharing on SQ metals everywhere else.  From 2017=DPS +HKG +PEK with likely more HNA Group hubs in N.East Asia later.

I still hv no clue what is Nashan's intention re VA but HNA Group's intention /expectation for VA is crystal clear.

Unlike SQ which is fundamentally only interested in VA Domestic ops, HNA needs VA to do more int'l lifting on its behalf...a whole lot more.

"SQ could have helped VA, if VA had lobbied for this it would have put them in a much better position..."

Lobby for what?

Are U aware that VA has been lobbying hard for yrs to serve SIN hub and elsewhere in S.E.Asia but repeatedly denied support by SQ.

SQ has been partially the reason why VA is in its current position.

04 May 2016

Total posts 34

If VA would just join Star Alliance they would represent a viable domestic alternative for those who are no longer rusted on to QF (and want a way out that doesn't penalize them .. even as OneWorld evaporates further by the day).

28 May 2016

Total posts 128

Would be a good deal for both parties. VA need the feed and would make star the most prominent carrier in virtually all parts of the globe.

07 Oct 2012

Total posts 1256

So if VA joins Star, Virgin Australia will be able to be an ongoing business. But without Star, they won't survive?

28 May 2016

Total posts 128

No, but it will help. More feed for VA would be a good thing and it would encourage VA to try to expand more internationally as they would have feed out of additional destinations.

 

Qantas - Qantas Frequent Flyer

02 Jul 2011

Total posts 1390

But may see more of the skyteam carriers (including Delta) that drive most of their traffic to VA, switch some to QF. Without a third airline, I suspect VA gets the majority of traffic from both Star and skyteam now

VA does however need better agreeements for their FFers with key airlines

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 240

Had to laugh at the claims that without *A, VA won't be viable.

Since then, the *A door has since shut on VA since the NZ-bust up, since NZ (and their BFFs at UA) will now use their veto to block any VA application. Luxon allegedly let his 'ego get in the way' which he allegedly said "VA should 'close all international' and only be a feeder carrier for NZ and Star" at the heated board meeting, which of course was rejected by all other VA shareholders.

SQ is going to have to live with VA remaining unaligned (if not as a SkyTeam carrier with DL sponsorship) should they not exit VA, as SQ and UA aren't exactly best buddies either.


3 years later, SkyTeam is VA's only alliance option available to them, especially with VA's (BFF) DL lurking in the wings should EY and/or HNA (or even SQ) sell up their stakes.

22 Jun 2016

Total posts 16

With ANZ now out of the VA equation, it would be a huge plus to Virgin and SIA if Management at VA took the bit in their mouth and joined Star Alliance! The onflow of *A pax travelling through Aus would boost VA's and TT's load factors to a profitable degree, without any large loss to QF.

28 May 2016

Total posts 128

It would be great for VA (and Star) but I don't think it would happen. Why management won't join, there must be some very strange reason.

31 Mar 2016

Total posts 644

"...Why management won't join, there must be some very strange reason."

U must be kidding about "strange reason" as it is commercially so obvious.

Given the ownership structure @ VA in the past and continued to be in the future, I would NOT join any alliance if I'm Borghetti and in charge of VA.

Why would VA want to prioritize and often restrict(per certain *A membership exclusivity requirement) its strategic alignment with *A and abandon similar opportunities with SkyTeam, EY Group(non-aligned) and soon HNA Group(non-aligned)?

If VA was in *A:

1) Do U think its Trans-Pcf JV with DL would be possible?  I refuse to believe VA did not talked to UA about a JV before approaching DL.  Like SQ, UA is only interested in VA domestic  ops all along and has zero interest in VA Trans-Pcf.

2) Do U think its European JV with EY Group(i.e. not just EY itself) and indeed EY investment in VA would be possible?  The only reason VA today still has a route out of AU plugging into a hub to reach Europe is EY, not SQ nor any prospective *A friends.

3) Do U think its codesharing with HNA Group and indeed HNA investment in VA would be possible?  How do U think CA, a powerful *A anchor in China, would react to VA+HNA serving SYD-PEK?

Singapore Airlines - KrisFlyer

26 Jul 2012

Total posts 35

Just to add to this discussion, I heard from reliabe foreign airline sources, that ANZ wanted board changes at VA, and as a result of that not eventuating, ANZ's sell off. There have also been restructures at board level at EY recently, and a freeze of non air crew jobs. VA should be making money, but they're not making much, and they need a major shake up. I know there is enormus frustration from board level with management, and deregulation?? has it worked? We still really have a duoply? Given the small market in a big country, shd we have given air rites to EK to cross the Tasman, especially as EK has three A380's to AKL from MEL, SYD, BNE respectively and about to start a direct A380 DXB-AKL!! I;m not sure that was a wise move!!!

28 May 2016

Total posts 128

No surpised RE management frustration with VA, it was only a matter of time.

In hindsight we probably should not have gievn the likes of EK access across the Tasman, but when the billaterial was written how ever many years a go nobody probably thought that an airline from the UAE would pose a threat to AUS-NZ traffic. :P

07 Oct 2012

Total posts 1256

In terms of prices deregulation worked... you fly cheaper today in real terms than you did back in their old days. As you've mentioned, we're a small market, so having more than a duoply is unlikely. 

31 Mar 2016

Total posts 644

"..shd we have given air rites to EK to cross the Tasman..."

I bet U the answer is yes for hundreds of pax who hv chosen or considering to choose EK daily to cross the Tasman....amazingly, even QF, as EK's ally,  would say yes nowadays....

"..about to start a direct A380 DXB-AKL!!"

Let alone this comment is so far off-topic, how does this EK nonstop route has anything to do with anything re the Australian int'l or even Trans-Tasman mkt in practice?!!!!

"...not sure that was a wise move!!!"

Wise move by whom?!!!!!!  Last time I check, New Zealand is a sovereign nation with its own aviation regime and int'l bi-lateral aviation treaties.

07 Feb 2016

Total posts 23

Singapore Airlines has used Virgin Australia to access the domestic Australian market which is a major source market for its global operations. With or without a greater stake, this relationship will probably continue. The addition of the two Chinese investors, who have an agenda of their own, will probably impact Chine bound traffic that SIA currently carries through its Changi hub in the long run.


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