Transcript
Virgin Blue proves tough competition for Qantas The World Today - Monday, 8 December , 2003
Reporter: Jo Mazzocchi
TANYA NOLAN: Now to a story that's bound to delight the flying public. Analysts are predicting that the aviation price war is likely to become a permanent feature of the Australian market, after today's public float of the low cost carrier, Virgin Blue.
As expected, the float listed at the premium price of $2.40 on the Sydney Stock Exchange this morning. The float has proved popular with big and small institutional investors. But market watchers wonder whether the airline can sustain its low prices in the long term, with rising labour costs and competition from Qantas serious issues for the carrier.
But Virgin Blue has dismissed those concerns, saying it's putting Qantas on notice, and that it will not be outdone by the flying kangaroo.
Jo Mazzocchi was at the float for The World Today.
(Sound of Richard Branson counting down to the float: "And we are down to five, four, three, two, one!" Sound of bell ringing and applause)
JO MAZZOCCHI: In true Richard Branson style, he rang the ceremonial bell at the Australian Stock Exchange not once or twice as is the usual practice, but as many times as he could. Clearly delighted at the success of today's float of Virgin Blue, Sir Richard, the company's founding partner, said it was a very proud day.
(To Richard Branson) Sir Richard, if I can start, obviously a very proud day for you.
RICHARD BRANSON: Yeah, very proud day for all the 3,400 people who work for Virgin Blue and what they've created in the last three years – a company that's now got 250 institutions on board, a company that's got 93 per cent of its staff as shareholders, and a company that's willing to take on Qantas and keep them honest.
JO MAZZOCCHI: That was a sentiment echoed by Brett Godfrey, the company's CEO. Today's float has raised $666 million for the low-cost carrier. It's also seen its market value now exceed more than $2.4 billion – not bad for a company that started with just $10 million.
Brett Godfrey.
BRETT GODFREY: Well, it's like I'm at a debutante's ball. It's like, seriously, with the birth of the airline back in, you know, it was August 25th 2000 when we got our licence, that was the most exciting day for me, not the first flight, which was five days later on the 30th. That was like the birth of my third child.
And here it is today, we're sending it around in the wide world to a fair degree. And that's how I perceive it. She's grown up a little bit.
JO MAZZOCCHI: And Brett Godfrey says the air war with Qantas has just begun.
You're saying Jetstar won't survive?
BRETT GODFREY: No, I'm not saying that. I'm probably more saying that the mainline won't survive. I don't believe the mainline on the east coast of Australia will be in its current form in three to five years time. It just seems clear to me that our model is very much more relevant, which is why corporates, our corporates have grown exponentially in the last 6 to 12 months.
All those things are now making us… being no different to Qantas in terms of anything other than great service and better pricing.
JO MAZZOCCHI: Ian Thomas is a senior consultant for the Centre for Asia Pacific Aviation. He says today's float represents good value for investors, but the question is, can Virgin Blue sustain its low prices?
IAN THOMAS: It really depends on how you view Jetstar's creation, you know, whether it was seen as a spoiler by Qantas and an attempt perhaps, to deter investors from investing in Virgin Blue.
From that point of view it seems to have failed. Clearly Virgin Blue was ten times plus oversubscribed, which indicates that there was strong investment demand, despite the Qantas announcement. The issue will really come down to how that materialises in terms of competition in the market later on.
JO MAZZOCCHI: And do you think that both airlines can continue to operate?
IAN THOMAS: Well, certainly all the players in the market are confident of that. We haven't seen too much positive news about that in the past, certainly the past ten years. But really, we're seeing two major operators in the market just really fragmenting into a number of different operations.
What will change, though, is essentially some of the dynamics at the discretionary travel end. And that's really the end that Jetstar's approaching, and Virgin Blue will really have to counter effectively if it wants to be profitable and continue to grow at the same rate as it has done, in the future.
TANYA NOLAN: Aviation analyst, Ian Thomas, speaking there to Jo Mazzocchi.
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