x Abu Dhabi, UAEFriday 28 July 2017

Etihad aims to own 10% of Virgin Australia

Etihad Airways plans to build its stake in Virgin Australia Holdings as it seeks a larger Asian footprint.

Virgin Australia flies to 45 destinations in Australia and New Zealand versus three destinations for Etihad in that region. Bloomberg News
Virgin Australia flies to 45 destinations in Australia and New Zealand versus three destinations for Etihad in that region. Bloomberg News

Etihad Airways plans to build its stake in Virgin Australia Holdings as it seeks a larger Asian footprint.

The Abu Dhabi-based airline yesterday said it paid US$35.6 million (Dh130.7m) through market purchases over the past few weeks for the 3.96 per cent holding in Australia’s second-largest airline. Today, Etihad announced that its stake in Virgin Australia has now reached 4.99 per cent.

Etihad plans to raise its stake in the future, said James Hogan, the airline’s president and chief executive.

“We believe in their strategy and management team, and by taking a stake we are investing in their future,” he said. “Under Australia foreign-investment rules we have to get permission to take it beyond 5 per cent … but we would like to take it to 10 per cent.”

The deal builds on a strategic partnership signed between the airlines in August 2010. Through its stake, Etihad hopes to strengthen its presence in Australasia to feed more traffic into its global network.

Virgin Australia flies to 45 destinations in Australia and New Zealand versus three destinations for Etihad in that region – the Australian cities of Sydney, Melbourne and Brisbane.

Etihad has been on a global acquisition campaign since December as it aims to expand its reach into more markets. In December, the airline raised its stake in Air Berlin to nearly 30 per cent from just under 3 per cent for about €73m (Dh333.6m).

Last month, it took a 3 per cent stake in Ireland’s Aer Lingus, signalling its intent to gain more access to European routes.

It also has bought a 40 per cent stake in Air Seychelles.

“We will continue to develop our core business, but what these deals do is extend our network offer for customers,” said Mr Hogan. “When you look at the distribution of our network, it gives us a far greater network offering than our near neighbours.”

Such deals served as a “smarter way” to build Etihad’s network than joining a major global alliance, he said.

“Etihad has strategic code-share partnerships with 35 airlines around the world and we want to continue working with them,” said Mr Hogan.

While its two European investments have pitted the airline against British Airways and Lufthansa, Etihad’s Virgin Australia stake puts it in competition with Qantas Airways.

Qantas yesterday warned that its full-year earnings might sink by as much as 91 per cent as losses mount in its international operations because of the worsening global outlook.

Asked whether Etihad would consider taking a stake in Qantas, Mr Hogan said his airline was focused on Virgin Australia. “We worked with Qantas back in 2008, and they didn’t want to move to the kind of relationship we have with Virgin Australia, so we parted ways.”

Virgin Australia has grown to become one of the success stories of Australian aviation. The British entrepreneur Sir Richard Branson launched the airline under the name Air Blue 12 years ago with just two planes, and it has since captured more than 25 per cent of the country’s domestic market. Virgin Australia is 26 per cent owned by Sir Richard and 20 per cent by Air New Zealand.

Mr Hogan said the Virgin Australia investment would allow the two airlines to pursue “synergies” to save money and boost efficiency. The pair are already building a joint premium passenger lounge in Sydney airport, and Mr Hogan said the airlines would look at potential tie-ups in areas such as information technology or engines.

Andrew Charlton, the managing director of Aviation Advocacy, a Geneva-based consultancy, said Etihad’s bolt-on investments were a reflection that there was a limit to its traditional business model of channelling passengers into its network through fleet and route expansion to major cities.

“Etihad’s assumption is that they will be able to feed more traffic to bring into their points,” he said.

Separately, the airline said it had suspended yesterday’s flight between Abu Dhabi and Tripoli due to the closure of the Tripoli airport.

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