Branson to reduce stake in listed Virgin - 8th December 2003
(Credit: The Sydney Morning Herald)

Virgin Blue will finally list on the Australian Stock Exchange at midday today, after a float was first mooted more than three years ago, with founder Sir Richard Branson confirming over the weekend he will sell down further his stake in the airline.

Citing the strong response to Virgin Blue's initial public offering among retail and institutional investors, Virgin Group said Sir Richard had agreed to cut his $670 million, or 29.1 per cent stake, to 25.1 per cent. In effect, the move boosts the percentage of the airline's shares available to the public to about 30 per cent of the operation.

With institutional investors already taking up two-thirds of the offer, which Virgin said was more than 10 times over-subscribed, the airline has drastically scaled back its allocation to individual investors.

While 92 per cent of Virgin Blue's 3000 staff will get everything they applied for, the airline's so-called v-mail or "valued customers" will receive the minimum $5000 shares they applied for - but only 50 per cent of any additional amount above $5000.

Other retail investors will receive only 25 per cent of applications above $5000.

While Sir Richard's move consolidates the grip over the airline held by 45 per cent shareholder Patrick Corp, the logistics group has still failed to disclose whether it has any plans to increase its stake, or even reshuffle the airline's management.

With the final price in the Virgin offering being set at the top of the $1.80 to $2.25, the airline's shares will be valued at 15.4 times forecast earnings, compared to Qantas, which is valued at about 11 times expected earnings.

Virgin is forecasting a full-year net profit of $150 million, compared to the previous year's $108 million. But the major challenges will be to maintain its growth momentum while fending off Qantas's new low-cost carrier, Jetstar.

With Virgin subsidiary Pacific Blue set to commence flights between Christchurch and Brisbane in late January, and Melbourne and Christchurch in March, the airline is also seeking to fly to Vanuatu, New Caledonia and Fiji.

Despite talk the airline could face an uphill battle getting access to Fiji, thanks to opposition from the part-Qantas-owned Air Pacific, Vanuatu has expressed strong interest in attracting Virgin flights and more tourists.

With Port Vila only being serviced by five flights a week from Sydney, three from Brisbane and two from Auckland, Airports Vanuatu has expressed interest for an airline to fly services from Melbourne, Cairns, Wellington and Christchurch.

UBS analyst Stephen Wood said one major factor that would help Jetstar on the cost front after its proposed launch next May will be the tighter seating configuration on its yet-to-be-delivered Airbus 320 aircraft.

With Jetstar's seat pitch (distance between each seat) at 76cm, compared to Qantas and Virgin Blue's 81cm, Mr Wood said the airline would have the potential to lift its available seat kilometres (ASK) per plane.

Scott Rochfort

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