Australia favours Virgin Blue on US routes: analysts
Mon "Business Times" (Singapore)
Australia favours Virgin Blue on US routes: analysts
SIA, Emirates may not get approval to extend services to Sydney, Melbourne
(MELBOURNE) Australia's government, facing a general election this year, may favour the nation's second-largest carrier Virgin Blue Holdings Ltd when it comes to awarding permission for lucrative flights to the US, analysts said.
Singapore Airlines Ltd (SIA) and Emirates, seeking the Australian government's permission to pick up passengers in Sydney or Melbourne before flying to the US from Singapore and Dubai, may not get the access, said Credit Suisse First Boston's analysts Greg Ward and Anthony Moulder.
Merrill Lynch & Co's transport analysts Simon Gresham and Trent Barnett agreed.
A Virgin Blue service to the US 'will reduce the possibility the government will provide SIA and Emirates access to the Australia-US route in the medium term,' Mr Ward and Mr Moulder wrote in a report last week.
At stake is a flight route that last year generated for Australia's biggest carrier Qantas Airways Ltd more than A$1.5 billion (S$1.8 billion) in sales with more than 25 per cent profit margin, one of the most profitable services. Virgin Blue, which grabbed a third of Australia's domestic air-travel market in four years, wants to fly to the US West Coast to compete with Qantas.
SIA and Emirates, which already fly to the US from Singapore and Dubai, want to extend their services to Sydney and Melbourne so they can serve business travellers and tourists from Australia and New Zealand.
The government of Australian Prime Minister John Howard, whose term ends in April 2005, is due to hold an election in the second half of this year.
Air rights are negotiated between governments. Virgin Blue hasn't filed an application for the US route with the Australian government's International Air Services Commission, which allocates the air rights. Any Australia-US service offered by Virgin Blue would have to offer a minimum three flights a week to obtain the rights.
Singapore's government, which owns SIA, has asked Australia to let Asia's most profitable carrier extend its Singapore-US route to Australia to help it get an edge over budget carriers. The carrier can't fly to the US directly from Australia.
Emirates, owned by the government of Dubai, flies twice daily to Sydney and Melbourne from the United Arab Emirates. The carrier, which flies to New York on a separate service from Dubai, is not seeking to fly directly to the US from Australia, said spokesman Mike Simon in Brisbane.
A new entrant on the Australia-US service could fly with costs 20 per cent to 30 per cent lower than Qantas and be able to offer cheaper fares, Merrill's Mr Gresham and Mr Barnett said. 'We believe this is a market that could grow substantially through price stimulation,' they told clients. - Bloomberg
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