Tues "The Australian"
Virgin Blue flies to $2.5bn
By Steve Creedy
December 09, 2003
Believers yesterday backed Virgin Blue's claim it could fend off a low-cost Qantas challenge with strong support that drove the airline's newly listed shares 8 per cent above their float issue price.
Virgin Blue shares closed at $2.43, compared with the issue price of $2.25, to give the airline a market value of almost $2.5 billion and make it the biggest float of 2003.
The strong debut also pushed the total capitalisation of the Australian stock market to a record $750 billion – ranking it among the top nine stock exchanges in the world.
More than 100 million Virgin shares changed hands in frantic first-day trading.
The initial public offering closed on Friday more than 10 times over-subscribed, setting the share price at the peak of the indicative range and fuelling weekend expectations of a strong debut.
The investor response convinced part-owner Richard Branson's Virgin Group to sell down its stake in the airline to 25.1 per cent. Co-founder Patrick Corp, however, spent $81 million, after taking into account a $45 million dividend, to maintain a 45 per cent controlling stake.
The change in control is not expected to produce major changes at Virgin Blue and Patrick boss Chris Corrigan yesterday reiterated statements that he was happy with the airline's management.
Virgin's $2.25 share price values the capital raising at $666 million – more than $100 million above initial predictions – and provides the airline with a war chest to counter Qantas and fund future expansion.
Chief executive Brett Godfrey said the airline's float and its success over the past three years had exceeded management expectations. "We always felt it was going to be successful but in our wildest dreams not like this," he said.
Mr Godfrey said he was particularly pleased by the response of institutional investors to the float. The airline had an exceptional share register with "pretty much a who's who" of investors and he was particularly happy about the support from Australian funds.
"Some people were querying why we should be a premium to Qantas in Australia but as it turned out the Australian markets were overwhelmingly supportive," he said.
Two thirds of the shares in the float will go to institutional investors and the rest to retail investors, including nine out of 10 Virgin staff.
A scale-back means investors receive their minimum allocation plus a percentage of their total request.
With the float behind them, Virgin Blue executives are now turning their attention to the launch next May of Qantas's low-cost offshoot JetStar.
Qantas has said the new airline will fly with lower costs and fares than Virgin Blue but Virgin executives are sceptical and believe JetStar is more likely to affect Qantas's mainline operations.
"I honestly don't believe it will get to our cost base unless it's going to be the cheapest, nastiest airline ever to fly the skies," Mr Godfrey said.
Mr Godfrey said he doubted Qantas's mainline service would survive in its current form beyond the next three to five years and that the airline as a whole would move to a more relevant low-cost model.
Meanwhile, the Civil Aviation Safety Authority is working with Virgin to fix maintenance inventory problems that have prevented the airline flying extended-range twin-engine operations.
A CASA spokesman said the authority had not taken regulatory action and the problems did not pose a safety risk.
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Tues ASX- Virgin Blue close $2.51 an increase of of 3.29% on
yesterdays close of $2.43
Wirraway
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