OAMag-V7N4-Cover [Converted] - Orient Aviation

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m a i n s t o r ying US$650 million, way up on the originalUS$500 million asking price.For SIA, already a powerful internationalplayer in Australia, Virgin is not only aboutthe market ‘Down Under’. It is a key link inthe carrier’s plans to extend its network fromEurope across the Atlantic to the U.S., using aBritish, now partly-owned, partner.Complicating matters, British Midland(BM), another UK operator and Virgincompetitor, is due to join the Star Alliancesoon, clouding the map on which SIA willoperate in Europe in conjunction with alliancepartners. BM also plans to launch trans-Atlanticservices this year and, as a Star partner, wouldexpect to be able to code-share with SIA.Mr Harbison is convinced developmentsover the past month could have a significantimpact on aviation in Asia. He believes Virginis moving towards a new strategy of globalaspirations and membership of a majoralliance, although Sir Richard Branson deniedthis.“We have no plans at all to join anyalliances. This is the marriage we want and thisis as far as we want it to go,” he said.Nevertheless, Mr Harbison said Virginis moving into Asia, which could have greatsignificance for airline competition – and forone or two key hub airports. “If Virgin doeswant to join one of the global alliances onequal standing, it needs more assets in itswar chest.“A position in the Indian market – with itsenormous potential – along with a footholdin Australia and a growing list of associationsin northern Asia would add much greatersubstance to its profile,” said Mr Harbison.He considered the alliance position in Asia“keenly poised”, with SIA apparently aboutto commit to Star, MAS moving towardsthe Wings grouping and the possibility thatTHAI, now a Star member, may explore otheroptions, depending on which foreign carrierends up holding shares.“The list of permutations is a long one. Theoutcome will possibly secure the future of atleast one airport and greatly affect the roles ofseveral airlines,” said Mr Harbison.MAS chairman, Tan Sri Tajudin Ramli, hasacknowledged the potential danger of theVirgin/SIA deal and pointed out MAS maysuffer if Kuala Lumpur International Airportis not developed quickly into a major regionalhub.“While we recognise there are somethreats to us here, there are also a lot ofopportunities that can be created,” he said,conceding MAS could lose its code-sharearrangement with Virgin on the Kuala LumpurSingapore Airlines deputy chairman andchief executive, Dr Cheong Choong Kong:“the failure of our Ansett attempt mayprove to be a blessing in disguise”to London sector.Despite some speculation about SIA’sintentions with Star, a spokesman for theairline told Orient Aviation membership wouldbe confirmed in April. This “does not precludeus from entering into bilateral strategicarrangements with airlines outside Star. Weare certainly thinking about opportunities thatmay arise following our decision to buy 49%of Virgin, including Richard Branson’s plansto enter the Australian aviation scene. But itis premature to talk about how this wouldimpact on our code-sharing arrangementswith Ansett,” he added.SIA’s position on equity participation inother airlines has not changed, he said. “Ourobjective is to grow into a global group ofairline and airline-related companies.”With around US$1 billion of reserve cashand another US$1.3 billion to come from theplanned sale of airport and engineering units,that undertaking is bound to cause extremeAirline shareholders may well have beentearing their hair out as the rash ofdevelopments in the industry sparkedsharp swings in the value of stock.Whether they were doing it out of joy ordespair depended where their cash wasinvested.Shocked Qantas Airways investors sawthe airline’s shares sink to an 11-month lowof US$2.27, well below the highs of over$3.25, on the news Virgin was shaping upto enter the domestic market.The deal knocked US$567 millionoff the value of Australia’s flag carrier,nervousness among some of SIA’s rivals.There may be more income to come. SirRichard Branson said SIA can expect to reaphuge profits within three years from its sharebuy.Final documentation on the deal wasexpected to be complete by the end ofJanuary.Sir Richard had a warning for long-time rivalBA: “We will be meeting every two monthsto plot how to compete with our mutual friend– British Airways,” he said.Under the deal, SIA and Virgin will haveagreements on code-sharing, frequent-flyerprogrammes and shared access to passengerlounges and airport facilities.“This deal is all about growth. Thesynergies derived from linking two perfectlycomplementary route networks will allowboth airlines to grow faster than either canmanage on their own,” said SIA CEO DrCheong.“One important benefit SIA will gain fromthis association with Richard Branson is thatwe Singaporeans will be infected by his joiede vivre and begin taking ourselves a little lessseriously. Richard Branson clearly has fun whenhe does business,” added Dr Cheong.That tongue-in-cheek remark concealsa steely determination at SIA to dominateAsia’s skies and continue with a strong growthpattern and improvements in economicperformance. “This is a long-term investment... It will have a positive impact on our EVA(economic value added),” he said.What is becoming apparent is that withinStar SIA will be operating an alliance withinan alliance, giving it enormous power andinfluence, but who the members are will verymuch depend on the outcome of the plannedshare sale process at several Asian airlines andelsewhere.Deal puts markets in a spinalthough by late January the stock hadrecovered to around the $3 mark.In London, British Airways shares alsodropped nearly 5%.Not surprisingly, SIA shares soared followingits Virgin purchase announcement,rising some 9.1% at its peak, its biggestone-day gain in six months.While MAS’s fortunes may be hit bythe new partnership, its shares also surgedon (apparently unfounded) speculationKLM Royal Dutch Airlines was preparingto take a stake in the Kuala Lumpur-basednational carrier.24 | Orient Aviation | February 2000
m a i n s t o r yBattlefield Australia!By Tom BallantyneQantas Airways and Ansett Australiaare gearing up for a battle royal asthree new competitors prepare tolaunch cheap, no-frills services on the country’sprimary domestic air routes. It will present theincumbents with their most serious marketchallenge ever.Observers believe the development hasthe potential to forever alter the Australiandomestic airline industry, although bothexisting operators do not appear eager tolaunch a no-frills offshoot themselves.The most serious aspect of new no-frillscarriers for Qantas and Ansett is that one ofthe start-ups is no ‘bunny’. It will be a divisionof the mercurial and newly knighted Sir RichardBranson’s Virgin Atlantic Airways, a manwho has been a thorn in the side of Qantas’oneworld partner British Airways for years.Worse still, Singapore Airlines (SIA), alreadya powerful player in the Australian internationalmarket, has just bought 49% of Virginand may use its new equity stake to leverageeven more presence in skies ‘Down Under’. (Seeseparate story).Sir Richard said SIA would decide “in thenext couple of months” if it wished to takepart in the Australian domestic operation.“We would be delighted to have them in. Ithink it’s possible. The investments are not veryconsiderable. Without the need to buy planes,the start-up would need to be capitalised atabout US$30-US$40 million. With aircraft, itcould go up another couple of hundred milliondollars.“If SIA did come in, they would not haveto put in any extra money. It is possible to fundthat airline through Virgin Atlantic,” said theentrepreneur.A spokesman for SIA, Rick Clements, said;“We are seriously considering various optionspresented by our purchase of the Virgin stakeand Richard Branson’s proposed entry into theAustralian aviation scene.”Meanwhile, two other local firms alsointend to enter the fray, although there remaindoubts about their capacity to raise sufficientfinance for their start-ups. Backers will be verynervous about funding airlines that will have tocompete against big money operators.They are:• Impulse Airlines, an existing Sydney-basedregional carrier which plans to lease 10Boeing B717s and fly major trunk routesbetween Brisbane, Sydney, Melbourne andAdelaide.• Spirit Airlines, a start-up which wants tolease two Boeing B737-400s and, initially,link Melbourne, Sydney and Brisbane. Spiritsaid it would expand the fleet to seven jetswithin four years. Observers believe it is theleast likely to succeed.Established in 1993, Impulse operates afleet of Beech 1900 turbo-props on a regionalnetwork out of Sydney.Ansett executive chairman Rod Eddington:“Branson will take customers from us ... wehave to be even more focused ...”Owner Gerry McGowan is understood tobe talking with Boeing about new aircraft.The head of Spirit is Mike Dixon, a formerpilot with Trans Australian Airlines (laterAustralian Airlines and now part of Qantas).The new carrier is modelled on the Texas-based,low-cost airline Southwest and other no-frillsservices in England and Canada.The newcomers want to launch flightsby July, but the timetable is far from certain.They have to gain air operators’ certificates(AOCs) from Australian regulatory authorities,a process which insiders say will take atleast six months. The Impulse application iscomplicated because the B717 will be a newtype in Australia.Ansett and Qantas have reacted cautiouslyto the newcomers. Neither will announcecounter plans until they know details of theoperations of their new rivals.When last facing low-cost start-ups inthe early 1990s – two versions of the ill-fatedCompass Airlines – both airlines lost severalhundred million dollars in a bitter and vitriolicprice war that raged over a three-year period.With Asia emerging from its economicrecession and the need for profitable performancedriven by nervous shareholders, neitherQantas nor Ansett want a repeat performance.Ansett in particular is in a difficult position.It is in the midst of major restructuring andrationalisation and has only just moved backinto profit after several lean years.Sources at both carriers suggest whilethey will react with aggressive discountingcampaigns when the time comes, it will be acarefully measured response using their highlysophisticated yield management systems toensure the impact on revenue and profits isnot dampened.The prospective new operators arepromising one-way fares of US$65 or lesson flights between the major state capitals,compared with more than US$130 currentlyon offer in the marketplace from the majorairlines.Ansett has ruled out launching its own lowcostsubsidiary, although Qantas is still studyingthe option. Ansett executive chairman, RodEddington, said the airline has “neither deepenough pockets nor the ability” to set up anew operation.“Branson has a strong global brand. He hasplenty of money. He already runs airlines. Hewill be a serious competitor and he will takecustomers from us,” he told staff in an internalmemo. “We have to be even more focusedon our Business Recovery Plan agenda thanever before, particularly on our cost reductioninitiatives.”Qantas chief executive, James Strong, hasindicated a response to the budget airlines maybe made in the early part of the year, althoughhe feels a July launch by Virgin is optimistic.He prefers an aggressive discountingcampaign to starting up a second airline, eventhough its partner, British Airways, launchedits own no-frills carrier, Go, to compete withsimilar competition in Europe.The arrival of a wholly foreign-owneddomestic operator in Australia would havebeen impossible 12 months ago, with foreigninvestment rules limiting offshore ownershipto below 50%.That all changed when the Australian Governmentamended the rules and put Australiaon the path towards liberalisation.26 | Orient Aviation | February 2000
Page 1 and 2: VOL. 7 NO. 4 FEBRUARY 2000MAGAZINE
Page 3 and 4: P U B L I S H E R ’ S L E T T E R
Page 5 and 6: N E W SRegional round-upMAS winging
Page 7 and 8: N E W Scarriers you can kiss your n
Page 9: and huge war chest, could be a new
Page 13 and 14: e x e c u t i v e i n t e r v i e w
Page 15 and 16: A s i a n A e r o s p a c eAA 2000
Page 17 and 18: visits for DC-10, MD-11, A310 and A
Page 19 and 20: a i r p o r t smay be hit with fee
Page 21 and 22: a i r p o r t sOver 100 flights a w
Page 23 and 24: a i r p o r t swould continue to ca
Page 25 and 26: g e n e r a l a v i a t i o nContam
Page 27 and 28: f e a t u r e25 years after the fal
Page 29 and 30: pick me up. I was never interviewed
Page 31 and 32: n e w sJapan Express: JAL is doubli
Page 33 and 34: s p e c i a l r e p o r tThe two ai
Page 35 and 36: the rest of its global business, th
Page 37 and 38: s p e c i a l r e p o r tImproved y
Page 39 and 40: - Qantas Airways, Cathay Pacific Ai

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