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Wednesday, 16 May, 2001, 12:44 GMT 13:44 UK
Branson raises trans-Tasman stakes
Virgin Blue
Virgin's struggle to fly across the Tasman Sea continues
Sir Richard Branson's Australian airline, Virgin Blue, is gearing up to gain access to the lucrative market for flights between Australia and New Zealand.

Sir Richard Branson
Sir Richard Branson is not giving up without a fight
In its latest bid, Sir Richard's low-cost airline is considering a possible alliance with Ansett, the second largest airline in Australia after Qantas.

Under the international Open Skies agreement, only the local airlines with a base in either country are allowed to fly across the Tasman Sea that divides the two countries.

Virgin Blue's ambition to link the two countries has hitherto been scuppered because it is considered British.

So a tie-up with Ansett could be useful - not only is it the number two Aussie airline, it is also a subsidiary of Air New Zealand.

A deal should, if nothing else, enable Virgin Blue to offer connecting flights via a partner airline.

Regulatory hurdles

The Australian anti-monopoly watchdog on Wednesday said it is looking into the proposed alliance.

Qantas logo
Qantas's alliance with Impulse is being probed by the anti-monopoly watchdog
The competition and consumer commission is already probing another proposed airline alliance, between Qantas and Impulse, also a low-cost airline.

The watchdog is concerned about this deal - which one analyst described as a takeover of Impulse - because it would reduce the number of competing airlines in Australia from four to three.

A deal between Ansett and Virgin Blue would reduce that to only two groups of airlines, each with a market share of about 50%.

Such an outcome would be unpopular with the regulator because it would create a monopolistic situation in Australia's airline market.

Not a merger

However, it is unlikely that Virgin Blue and Ansett will seek an all-out merger.


We want Virgin aeroplanes flying the skies in Australia for a long, long time to come.

David Huttner
Virgin Blue
A range of opportunities for cooperation are under discussion, but negotiations are in an initial phase, said Virgin Blue's commercial head, David Huttner.

He stressed that Virgin Blue is not prepared to give up its brand name.

"It's critical for Virgin to maintain our brand," he said.

"We want Virgin aeroplanes flying the skies in Australia for a long, long time to come, so that would be a factor."

Permission possible

Separate from its talks with Ansett, Virgin Blue on Monday formally applied to the New Zealand government for special clearance to offer trans-Tasman flights.

If permission is given, it will launch a low-cost airline in New Zealand too.

This may well be welcomed by the people of New Zealand who have not exactly been spoiled for choice after Qantas' franchise operator in New Zealand, Tasman Pacific, collapsed recently.

Virgin Blue is also lobbying hard to gain the Australian government's backing to set aside the Open Skies agreement - both governments must agree to make it happen.

Controversy

The Open Skies agreement is not entirely popular with local airlines either.


We would have enormous support worldwide if we could open up the ownership, but it is not easy.

Selwyn Cushing
chairman
Air New Zealand
Air New Zealand needs money to fund new aircraft after subsidiary Ansett last month grounded 10 Boeing 767s, forcing its parent to bring forward its fleet replacement program.

Singapore Airlines, which owns a 25% stake, has refused to fund the fleet upgrade.

And selling another stake in the company to an overseas airline is not a viable solution because if Air New Zealand sells more shares to foreigners, its international flights rights under the Open Skies agreement could be at risk.

So the cash-strapped airline has asked the government for a cash injection of 580m New Zealand dollars.

Pressure

However, Air New Zealand chairman Selwyn Cushing was quoted in the New Zealand Herald newspaper on Monday saying that a government cash injection should be a short-term measure.

In the same breath, he called for the relaxation of restrictions on ownership and control of the airline.

"The fact is, New Zealand has not got enough local grunt to provide the additional capital," he said.

"We would have enormous support worldwide if we could open up the ownership, but it is not easy".

Other cross-ownerships

Qantas also has a foreign stake-holder which owns 25% of its shares.

This is British Airways, which is seen as the arch rival to Sir Richard's Virgin Atlantic in the UK.

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See also:

01 May 01 | Business
Airlines clash down under
31 Aug 00 | Business
Virgin Blue takes off down under
01 Apr 01 | Business
Profits grounded at Qantas
10 Dec 00 | Business
BA seeks closer ties with Qantas
22 Feb 01 | Business
Tough market for Qantas
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