Branson Starts Talk to Set Up Budget Airline In Asia
- 10th Dec 2004
Richard Branson, who turned a A$10
million ($7.5 million) investment in Australia's
Virgin Blue into a discount airline valued at
A$2.8 billion, says he's eyeing other Asian nations
to replicate his carrier's success.
are in discussions with one or two people about
either working with them on a low-cost airline
they have already set up or setting up a low-cost
airline,'' Branson said in a televised interview
with Bloomberg News in Sydney. He predicted a
decision in three to six months.
is entering a market where discount carriers are
starting to flourish as governments relax traffic
agreements to revive tourism after this year's
outbreak of the SARS virus. He has also short-listed
five U.S. cities as the base for a discount carrier
called Virgin USA, prompting California governor
Arnold Schwarzenegger to lobby on behalf of Los
focus on new markets comes after Virgin Express
in Europe cut its fleet to 13 aircraft from 23.
Price competition and travelers' concerns about
the threat of terrorism caused profit at the airline
to plunge 96 percent in the second quarter.
would be hesitant to throw my hands up in the
air just because Richard Branson said he might
do something -- he has had mixed success,'' said
Mark Webb, an analyst at HSBC Securities in Hong
Kong. ``Any country with a large domestic market
and leisure market provides prospects. There are
already low-cost carriers in Thailand, Indonesia
and the Philippines.''
starting services three years ago with two planes,
Virgin grabbed 30 percent of the Australian domestic
market and will challenge Qantas Airways Ltd.
on international flights next month. Branson's
company has earned about A$750 million from its
investment in Virgin Blue Holdings Ltd., including
A$250 million from the initial share sale on Monday.
partners in Asia may include Tony Fernandes, who
plans to sell a third of his AirAsia Sdn. next
year to raise as much as $300 million. The Malaysian-based
discount carrier plans to more than double its
fleet of nine Boeing Co. 737 aircraft to 20 by
June next year.
Airlines Ltd. yesterday announced plans to set
up Tiger Airways, a low-cost airline, with the
island state's investment arm, Temasek Holdings
Pte, Irelandia Investments, a stakeholder in Dublin-based
discount airline Ryanair Holdings Plc, and another
Airways International Pcl is also considering
a discount unit. Orient Thai Airlines Co., a privately
owned carrier, this month announced a new unit
to offer both domestic flights and routes linking
Thailand and Malaysia. Other low cost carriers
include Manila-based Cebu Pacific Air Inc., a
unit of JG Summit Holdings Inc., and Lion Air
is unlikely to select airline hubs such as Hong
Kong or Singapore, because of their high costs
and small domestic markets, Webb said. Entering
China may be hard because of regulations governing
will probably avoid competing with Virgin Atlantic
Airways, the No. 2 U.K. full-service carrier that's
51 percent owned by Virgin and 49 percent owned
by Singapore Airlines Ltd, which offers long-distance
flights in Asia.
Blue's stock has risen 12 percent from its A$2.25
IPO price since trading started Monday, valuing
Virgin Group's remaining 25 percent stake at A$700
million. Branson last year sold a 50 percent stake
in the airline to Australian transport company
Patrick Corp. for A$500 million. Patrick has retained
a 45 percent stake in the carrier.
Blue certainly must be one of our most successful''
investments, Branson said. ``There are other investments
where we have managed to create that sort of value,
like mobile phones, but it has taken longer''
than three years.
of the Virgin Blue money may be used to expand
other Virgin companies, such as Virgin USA and
a Canadian cell-phone provider, Branson said.
``We have lots of hungry mouths all over the world,''
Australia, Branson said he's looking at the banking
and radio industries for expansion. Virgin Money
this year started offering a credit card in Australia
in partnership with Westpac Banking Corp. In June,
Australia's broadcasting regulator said it will
sell radio licenses in the country's four biggest
USA aims to emulate the success of carriers such
as JetBlue Airways Corp. and Southwest Airlines
Co. They have remained profitable since 2001,
when the Sept. 11 attacks on the World Trade Center
worsened an air-travel slump.
said last month he plans to invest about $200
million with partners to set up a low-cost airline
in the U.S. next year, deliberately avoiding routes
served by those two airlines.
got into trouble because Arnold Schwarzenegger
has been campaigning to get us into Los Angeles
and, of course, that has hit the headlines,''
Branson said. ``But we haven't actually settled
on any particular city at the moment.''
Blue will use some proceeds from the A$666 million
share sale to boost its reach. Its Pacific Blue
unit will start flying between New Zealand and
Australia in January, and it plans to add flights
to Fiji and New Caledonia.
company also is girding for a price war with Qantas,
which has set up its own discount unit, Jetstar,
to challenge Virgin Blue.
Chief Executive Geoff Dixon last week said Jetstar,
which will start flying in May, will offer the
cheapest fares in Australia. ``We will be price-setters
in both ends of the market,'' Dixon said after
announcing the purchase of 23 Airbus A320 aircraft
doesn't agree. ``We are so well capitalized now
that we could last twice as long as Qantas could
last in a price war,'' he said. ``It would be
unwise for them to attempt to damage through a
straightforward price war.''
said Jetstar is more of a challenge for Qantas
than it would be for Virgin Blue. ``The danger
for Qantas is that it would bastardize their own
airline,'' he said. ``If they are really going
to try to get the cost down to Virgin Blue's levels,
the quality may not be as good.''
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