Singapore Airlines buys 49% of Virgin Atlantic
Dec 20, 1999, 9:47 am
#1
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Singapore Airlines buys 49% of Virgin Atlantic
With SIA joining the Star Alliance, one could assume that Virgin will follow??
LONDON (CNNfn) - Singapore Airlines announced plans Monday to take a 49 percent stake in London-based carrier Virgin Atlantic, increasing pressure on Virgin’s archrival, British Airways.
SIA surprised industry observers by paying 600 million pounds ($975 million) for the stake, which forms the centerpiece of a broader marketing alliance.
The value is about twice the amount analysts had expected Virgin to fetch. The deal, which could also see Virgin take a stake in SIA, is expected to close early next year.
SIA will inject 49 million pounds in equity into Virgin Atlantic, currently wholly owned by Richard Branson’s Virgin Group. The latter will also pump a further 51 million pounds into the airline company, boosting its balance sheet at a time when it faces a heavy capital investment burden for new aircraft.
Virgin Atlantic Airways, Britain’s second-largest carrier, is expected to break even this year on sales of around 1 billion pounds, but analysts pointed to broader strategic benefits of the alliance with SIA. "It’s a very high price,” said Chris Tarry, aviation analyst at Commerzbank in London. "[But] It also brings Virgin firmly into Star.”
SIA said earlier this year it would join the Star Alliance, the world’s largest airline grouping, led by Lufthansa and UAL Corp.’s (UAL) United Airlines. This followed the decision by British Midland, the U.K. third-largest airline, to also join Star,
Shares of British Airways [LSE: BAY], which heads the rival oneworld alliance alongside AMR Corp.’s (AMR) American Airlines, dropped 7.5 percent after SIA’s announcement. The tie-up looks set to stiffen competition to the No. 1 U.K. airline, as its two largest domestic rivals are now members of a rival global alliance.
Virgin Atlantic is the lynchpin of Branson’s leisure and entertainment empire Virgin Group, which includes a holiday operator as well as the airline.
Branson has discussed floating a stake in the company to fund expansion and also been linked to strategic partnerships, with Air France and Delta Air Lines seen as the leading candidates.
SIA, consistently the most profitable airline in Asia, has tried and failed to take stakes in a number of regional carriers in recent months, including Taiwan’s China Airlines and Ansett Australia. It is reportedly close to signing a deal to manage Indonesia’s Garuda.
Analysts said the deal would give SIA access to new markets, allowing it to shift aircraft from the Asian area, which is still recovering from the region’s economic crisis. "SIA has made a big play of access to Heathrow and flying across the Atlantic,” said Tarry.
While BA shares fell on the prospect of increased competition, Tarry said the SIA-Virgin link could help the flag carrier. "It gives BA the excuse to go back to the regulators,” said Tarry. BA’s planned alliance with American has been on the rocks, amid opposition from antitrust watchdogs, since first announced three years ago.
Competition officials on both sides of the Atlantic have blocked the deal citing oneworld’s possible dominance on transatlantic routes. However, the combination of Virgin’s accord with SIA and the earlier entry of British Midland into the Star group might persuade regulators to give the go-ahead to a diluted form of the BA-AMR alliance.
LONDON (CNNfn) - Singapore Airlines announced plans Monday to take a 49 percent stake in London-based carrier Virgin Atlantic, increasing pressure on Virgin’s archrival, British Airways.
SIA surprised industry observers by paying 600 million pounds ($975 million) for the stake, which forms the centerpiece of a broader marketing alliance.
The value is about twice the amount analysts had expected Virgin to fetch. The deal, which could also see Virgin take a stake in SIA, is expected to close early next year.
SIA will inject 49 million pounds in equity into Virgin Atlantic, currently wholly owned by Richard Branson’s Virgin Group. The latter will also pump a further 51 million pounds into the airline company, boosting its balance sheet at a time when it faces a heavy capital investment burden for new aircraft.
Virgin Atlantic Airways, Britain’s second-largest carrier, is expected to break even this year on sales of around 1 billion pounds, but analysts pointed to broader strategic benefits of the alliance with SIA. "It’s a very high price,” said Chris Tarry, aviation analyst at Commerzbank in London. "[But] It also brings Virgin firmly into Star.”
SIA said earlier this year it would join the Star Alliance, the world’s largest airline grouping, led by Lufthansa and UAL Corp.’s (UAL) United Airlines. This followed the decision by British Midland, the U.K. third-largest airline, to also join Star,
Shares of British Airways [LSE: BAY], which heads the rival oneworld alliance alongside AMR Corp.’s (AMR) American Airlines, dropped 7.5 percent after SIA’s announcement. The tie-up looks set to stiffen competition to the No. 1 U.K. airline, as its two largest domestic rivals are now members of a rival global alliance.
Virgin Atlantic is the lynchpin of Branson’s leisure and entertainment empire Virgin Group, which includes a holiday operator as well as the airline.
Branson has discussed floating a stake in the company to fund expansion and also been linked to strategic partnerships, with Air France and Delta Air Lines seen as the leading candidates.
SIA, consistently the most profitable airline in Asia, has tried and failed to take stakes in a number of regional carriers in recent months, including Taiwan’s China Airlines and Ansett Australia. It is reportedly close to signing a deal to manage Indonesia’s Garuda.
Analysts said the deal would give SIA access to new markets, allowing it to shift aircraft from the Asian area, which is still recovering from the region’s economic crisis. "SIA has made a big play of access to Heathrow and flying across the Atlantic,” said Tarry.
While BA shares fell on the prospect of increased competition, Tarry said the SIA-Virgin link could help the flag carrier. "It gives BA the excuse to go back to the regulators,” said Tarry. BA’s planned alliance with American has been on the rocks, amid opposition from antitrust watchdogs, since first announced three years ago.
Competition officials on both sides of the Atlantic have blocked the deal citing oneworld’s possible dominance on transatlantic routes. However, the combination of Virgin’s accord with SIA and the earlier entry of British Midland into the Star group might persuade regulators to give the go-ahead to a diluted form of the BA-AMR alliance.
Dec 20, 1999, 6:03 pm
#2
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3 airlines must be reeling at that news...
1. Ansett Australia for when SQ wanted to invest in 50% only to be scuttled by Air New Zealand.
2. Air New Zealand in the hopes for SQ to invest in them instead, but only to see SQ walk away from the deal and not investing in either airline.
3. Canadian Airlines - in seeing that their worth is so little compared to Virgin's.
Welcome to a new travelling millenium!
1. Ansett Australia for when SQ wanted to invest in 50% only to be scuttled by Air New Zealand.
2. Air New Zealand in the hopes for SQ to invest in them instead, but only to see SQ walk away from the deal and not investing in either airline.
3. Canadian Airlines - in seeing that their worth is so little compared to Virgin's.
Welcome to a new travelling millenium!
Dec 21, 1999, 6:41 am
#3
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Should the heading be: SIN WINS OVER VIRGIN!
Two questions. 1. Will SQ be satisfied with less than control? That was the sticking point with all of its earlier attempts to buy into the airlines listed above.
2. Are we now sure that SQ will go ahead and enter Star? SQ is worried about diluting its reputation through association with markedly inferior products such as UA. The alternative is to have their own special alliance: Virgin on the Atlantic and Ansett/Air NZ on the South Pacific. Both are quite complementary to SQ. Remember that the majority shareholder in Air NZ is a company called Brierly, whose largest owner is a Singapore Semi-Government instrumentality. SQ does not control Air NZ and Ansett, but is well placed to stop anyone else taking them over.
All could add up to an interesting strategy, with SQ as the hub.
Watch this page.
Two questions. 1. Will SQ be satisfied with less than control? That was the sticking point with all of its earlier attempts to buy into the airlines listed above.
2. Are we now sure that SQ will go ahead and enter Star? SQ is worried about diluting its reputation through association with markedly inferior products such as UA. The alternative is to have their own special alliance: Virgin on the Atlantic and Ansett/Air NZ on the South Pacific. Both are quite complementary to SQ. Remember that the majority shareholder in Air NZ is a company called Brierly, whose largest owner is a Singapore Semi-Government instrumentality. SQ does not control Air NZ and Ansett, but is well placed to stop anyone else taking them over.
All could add up to an interesting strategy, with SQ as the hub.
Watch this page.
Dec 21, 1999, 7:25 am
#4
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don't we like COMPETITION:
Qantas, Ansett cut fares in response to Virgin threatThey will slash full economy-class fares by 70% on Sydney to Melbourne route. Mr Dixon: the new domestic carrier will be subject to very vigorous competition
[SYDNEY] Qantas and Ansett have responded to a challenge laid down by British tycoon Richard Branson and are slashing fares on domestic routes in Australia, signalling a price war.
Mr Branson's Virgin Group announced last month it was launching a cut-price airline next year to challenge the duopoly of Qantas and Ansett.
The entrepreneur said he would offer seats on the busy Sydney to Melbourne route from under A$100 (S$107) one-way and has already received Foreign Investment Review Board approval.
Qantas and Ansett have responded with return fares on the same route for A$189 -- or A$95 one-way, representing a 70 per cent discount on full economy-class fares, the airlines said in
statements yesterday.
In all, Qantas is offering one million heavily-discounted seats to 33 destinations in Australia and New Zealand.
The move follows a sharp dive in the Qantas share price, which closed at A$3.84 on Friday, down more than a dollar prior to the Virgin announcement.
Qantas chief executive Geoff Dixon said the sale indicated the new domestic carrier would be subject to "very vigorous competition". Mr Branson will invest US$30 million on an initially modest fleet of five 143-seat Boeing 737-300s, but promises to expand within three years to service all major Australian centres with a population greater than 50,000.
Last week another no frills carrier, Spirit Airlines, said it would begin operating two Boeing 737-400s, which can carry 168 passengers, between Sydney, Melbourne and Brisbane.
They will begin flying in June 2000 -- one month ahead of Mr Branson's yet-to-be-named airline, offering seats at A$95 one-way. -- AFP
[SYDNEY] Qantas and Ansett have responded to a challenge laid down by British tycoon Richard Branson and are slashing fares on domestic routes in Australia, signalling a price war.
Mr Branson's Virgin Group announced last month it was launching a cut-price airline next year to challenge the duopoly of Qantas and Ansett.
The entrepreneur said he would offer seats on the busy Sydney to Melbourne route from under A$100 (S$107) one-way and has already received Foreign Investment Review Board approval.
Qantas and Ansett have responded with return fares on the same route for A$189 -- or A$95 one-way, representing a 70 per cent discount on full economy-class fares, the airlines said in
statements yesterday.
In all, Qantas is offering one million heavily-discounted seats to 33 destinations in Australia and New Zealand.
The move follows a sharp dive in the Qantas share price, which closed at A$3.84 on Friday, down more than a dollar prior to the Virgin announcement.
Qantas chief executive Geoff Dixon said the sale indicated the new domestic carrier would be subject to "very vigorous competition". Mr Branson will invest US$30 million on an initially modest fleet of five 143-seat Boeing 737-300s, but promises to expand within three years to service all major Australian centres with a population greater than 50,000.
Last week another no frills carrier, Spirit Airlines, said it would begin operating two Boeing 737-400s, which can carry 168 passengers, between Sydney, Melbourne and Brisbane.
They will begin flying in June 2000 -- one month ahead of Mr Branson's yet-to-be-named airline, offering seats at A$95 one-way. -- AFP
Dec 21, 1999, 7:08 pm
#5
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Just a thought:
perhaps, SQ could come to some kind of arrangement with VS like VS did with AI. This time, SQ could wet-lease a plane to VS with its crew and operate it for VS on the LHR --> JFK route - then code-share. Then, SQ could finally operate LHR --> JFK.
perhaps, SQ could come to some kind of arrangement with VS like VS did with AI. This time, SQ could wet-lease a plane to VS with its crew and operate it for VS on the LHR --> JFK route - then code-share. Then, SQ could finally operate LHR --> JFK.