Thurs "The Australian"
Virgin's blue ends in a big victory roll
November 07, 2002
MACQUARIE Bank blinked first and capitulated to Richard Branson and Chris Corrigan over the lease terms for Virgin Blue on the former Ansett terminal at Sydney airport.
The extent of the surrender is breathtaking, but can be explained by the fact that the bank and its troubled spin-off Macquarie Airports stood to lose rent at a rate of about $25 million a year from the airline and retail concessions in the terminal if the stand-off continued.
Virgin gets six gates exclusively and access to another six in the near-new terminal, although it originally asked for nine. The lease is for 17 years, whereas Virgin was happy to do its handshake deal in April for 10 years plus an option for another five.
The rent starts at $13 million a year and builds to $18.6 million, which is the lease agreed in the deal Virgin boss Brett Godfrey and half-owner Patrick Corp's Corrigan struck in April with former Sydney Airports Corp chairman David Mortimer.
The toll Macquarie wanted to charge Virgin of $6.50 a passenger is only true for the first two million travellers, but falls away to just 80c at four million to give the $18.6 million annual lease figure.
Virgin is contracted to have passengers moving through its terminal at a rate of four million a year by the end of 2003. The airline claims it is nearly there already.
Although the parent bank appears to have intervened to break the stare-down and get the rent flowing, the reason SACL and its chief executive Tony Stuart resisted Virgin for so long – on the grounds Singapore Airlines would come in as a third domestic carrier in Australia and require terminal space – is no longer valid.
Stuart was prepared to keep the terminal empty while he waited for Singapore. It never came.
A skilled and aggressive advertising campaign by Branson and Corrigan aimed at the Macquarie Bank parent's Achilles heel seems to have worked. As its share price sank in September and October to a three-year low, the bank's need to do a deal became overpowering.
One rumour that did the rounds during the stand-off was that Corrigan might do a deal with Singapore to try to persuade it to buy into Virgin. Although Singapore was thought to be interested in a domestic presence in Australia to feed passengers on to its international services, it wasn't interested in committing commercial suicide.
It appears that Corrigan did have some discussions with the Singaporeans a month or two back, but they seem happy to use the city-state as a hub rather than Australia. Also, Virgin Blue's single-class cabins don't fit the full-service philosophy of Singapore.
So Singapore isn't a starter in Australia. It took Stuart a few months to work this out and in the meantime the rent wasn't being paid.
Now that Virgin has effectively secured the spare gates that Qantas hasn't got in the terminal, Singapore can't enter the Australian domestic market for the next 17 years even if it changed its mind.
Singapore's apparent decision to stay away from Australia's domestic market may have something to do with the application by its 49 per cent carrier, Virgin Atlantic, to fly from Hong Kong to "one or two" Australian cities.
Yesterday Stuart inadvisedly accepted Branson's invitation to take part in yet another stunt, smoking a peace pipe and burying a hatchet to signify the end of hostilities. The peace has been achieved, but overwhelmingly in Virgin Blue's favour. The float early next year of about 20 per cent of Virgin is virtually guaranteed lift-off.
Surrounded by models dressed as Red Indians, Stuart had smoke blown in his face and watched Branson put a short-handled axe under a concrete slab.
It was all a bit of fun, but Branson in Sydney and his partner Chris Corrigan in Perth on other business yesterday were definitely having the last laugh.
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TravelBiz.com.au
Virgin Atlantic sets its sites on HK-Australia flights
Virgin Atlantic plans to launch daily flights between Hong Kong and Australia in mid 2003.
Speaking to Travelbiz in Melbourne yesterday, Richard Branson said informal talks had been held with the Hong Kong government and formal negotiations would begin in the UK in January.
The carrier intends to use its newly delivered 311-seat A340-600s - the world’s longest aircraft - to offer daily services ex Australia, connecting to its Hong Kong-London flights.
Branson said Virgin Atlantic would also look to operate the A380 ‘super jumbo’ to Australia once it took delivery of the aircraft in 2006.
He said the airline would decide on which Australian ports it would operate to within the next two months.
Virgin Atlantic’s Hong Kong-London services benefited from significant Australian feed provided by Ansett International. Since the Australian carrier’s collapse, Branson claimed Onworld alliance members Qantas, British Airways, and Cathay Pacific had enjoyed a “triopoly” on the route.
“As a result, airfares are very high between Hong Kong and Australia and if Virgin Atlantic gets in there to compete it will be good for the public.”
Branson said Virgin Blue was also considering 18 different ports for international expansion, including Hong Kong.
“[Virgin Atlantic and Virgin Blue] could operate a bit like Qantas and Australian Airlines,” he said.
The Virgin chief claimed Bali remained another option, despite last month’s bombings in Kuta.
“Bali needs all the support can get so I would like to see that on the list as well. One incident shouldn’t be allowed to destroy a destination.”
Meanwhile, Virgin Atlantic has also set its sites on fighting any renewal of the Qantas-British Airways join services agreement (JSA) on the Kangaroo route.
The 10 year agreement, which allows for the sharing of profits and co-ordination of schedules on the route, is due to expire in June 2005.
Branson said the airline had already approached the ACCC and intended to hold further discussions over the next 12 months.
“Obviously it is stupid that the two biggest carriers are allowed to collude on fares.”