Patrick slams Virgin
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Patrick slams Virgin
news.com.au
Patrick slams Virgin
By Kaaren Morrissey
February 03, 2005
From: AAP
PATRICK Corp chief executive Chris Corrigan today said his company would be happy to take a controlling stake in Virgin Blue, saying the airline needed to change its model to better deal with competition from Qantas and Jetstar.
"We are satisfied with a controlling stake," Mr Corrigan said after announcing financial results. Mr Corrigan declined to comment on whether Patrick would have to increase its bid for Virgin Blue after Richard Branson said last week the offer was too low.
He said the two parties clearly disagreed on what was fair value for the airline but he would not be against Mr Branson remaining on board at Virgin Blue.
"I welcome him to stay on as a shareholder," he said.
Mr Corrigan said he felt strongly that Virgin Blue should adapt its model to deal with the threat of Qantas' low-cost airline Jetstar.
"We need to adapt this model to the Australian environment," he said.
"We underestimated the impact of Qantas (Jetstar)."
Virgin results disappointing
Mr Corrigan took a swipe at Virgin Blue's so-called "Happy Hour" $1 airfare.
"Clearly you are not making any money from a $1 airfare," he said.
He said the rapid fall in airfares seen in the market since Jetstar began operations needed to stop.
Mr Corrigan said at the meeting that the airline's September half profit and the profit downgrade in January were disappointing.
"Profitability hasn't been as good as hoped," Mr Corrigan told shareholders.
"Since Jetstar the operating environment has been much more competitive."
He said the aviation industry was still adding too much capacity for the level of demand, while fuel levies on ticket prices was also having an impact.
"Fuel levies and higher airport charges are now slowing demand," he said.
Patrick's operating profits for the quarter to December, 2004 were in line with expectations, excepting the equity accounted results for Virgin Blue.
Patrick described its result for the year to September, 2004 as "satisfactory", adding that it represented the company's sixth consecutive record profit.
It said revenue from operating activities increased 14 per cent to $1.25 million, excluding equity share of associates.
Total earnings before interest, tax and individually significant items increased 22 per cent to $253 million.
Virgin Blue's contribution to total earnings was $48.9 million, down four per cent on last year.
Pacific National's contribution totalled $45.8 million, an improvement of 56 per cent on the year.
"These financial results reflect strong organic growth of the Patrick businesses combined with a continued focus by management on cost control and productivity improvement across the group," the company said.
AAP
==========================================
Patrick slams Virgin
By Kaaren Morrissey
February 03, 2005
From: AAP
PATRICK Corp chief executive Chris Corrigan today said his company would be happy to take a controlling stake in Virgin Blue, saying the airline needed to change its model to better deal with competition from Qantas and Jetstar.
"We are satisfied with a controlling stake," Mr Corrigan said after announcing financial results. Mr Corrigan declined to comment on whether Patrick would have to increase its bid for Virgin Blue after Richard Branson said last week the offer was too low.
He said the two parties clearly disagreed on what was fair value for the airline but he would not be against Mr Branson remaining on board at Virgin Blue.
"I welcome him to stay on as a shareholder," he said.
Mr Corrigan said he felt strongly that Virgin Blue should adapt its model to deal with the threat of Qantas' low-cost airline Jetstar.
"We need to adapt this model to the Australian environment," he said.
"We underestimated the impact of Qantas (Jetstar)."
Virgin results disappointing
Mr Corrigan took a swipe at Virgin Blue's so-called "Happy Hour" $1 airfare.
"Clearly you are not making any money from a $1 airfare," he said.
He said the rapid fall in airfares seen in the market since Jetstar began operations needed to stop.
Mr Corrigan said at the meeting that the airline's September half profit and the profit downgrade in January were disappointing.
"Profitability hasn't been as good as hoped," Mr Corrigan told shareholders.
"Since Jetstar the operating environment has been much more competitive."
He said the aviation industry was still adding too much capacity for the level of demand, while fuel levies on ticket prices was also having an impact.
"Fuel levies and higher airport charges are now slowing demand," he said.
Patrick's operating profits for the quarter to December, 2004 were in line with expectations, excepting the equity accounted results for Virgin Blue.
Patrick described its result for the year to September, 2004 as "satisfactory", adding that it represented the company's sixth consecutive record profit.
It said revenue from operating activities increased 14 per cent to $1.25 million, excluding equity share of associates.
Total earnings before interest, tax and individually significant items increased 22 per cent to $253 million.
Virgin Blue's contribution to total earnings was $48.9 million, down four per cent on last year.
Pacific National's contribution totalled $45.8 million, an improvement of 56 per cent on the year.
"These financial results reflect strong organic growth of the Patrick businesses combined with a continued focus by management on cost control and productivity improvement across the group," the company said.
AAP
==========================================
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Fed up, Corrigan makes his move
Business Review Weekly
Fed up, Corrigan makes his move
Patrick Corporation has lost patience with Virgin Blue's management.
By Adele Ferguson
BRW. 03 February 2005
Events on December 16 and January 19 will go down in history as the trigger points for Patrick Corporation's $1.90-a-share bid for the low-cost airline Virgin Blue. On the first of those days, Brett Godfrey, the chief executive of Virgin Blue, sold five million shares at an average price of $1.88 - never a good message for a chief executive to send to the market. And on the other day, he informed the Australian Stock Exchange that the airline's full-year results would be 10-15% below last year's.
The result was a 12% crash in the share price and renewed speculation of tensions between Godfrey and Virgin Blue's largest shareholder, Patrick Corporation.
Patrick owns 45.4% of Virgin Blue and on January 28 chief executive Chris Corrigan decided he had had enough of not being in control of the board and strategy, and bid for the remaining 54.6%. It looks likely that Virgin Blue directors will reject the offer, because the other key shareholder, Sir Richard Branson's Virgin Group, bought five million shares on the day Patrick made the bid, at an average price of $2.06. It is now up to the regulator to decide on the price. But on the basis that Godfrey thought $1.88 was a good price at which to sell his shares in December a few weeks before he warned of a profit downgrade, it would be hard to justify the offer as too low. If Patrick wins control of Virgin Blue, it will have a big effect on the airline industry, and on Patrick.
Virgin is one of the most profitable low-cost airlines in the world, but it is struggling to find new areas of growth and efficiency. If Corrigan wins control of the company he will apply economic rationalism to improve efficiency and cut costs. One of the first people he will contact is Geoff Dixon, the chief executive of Qantas. Qantas and Patrick already have a joint-venture engine shop, so it makes sense for Virgin aircraft to be put through this operation. It also makes sense to investigate sharing other back-office facilities such as maintenance and catering. This could then be extended to other airlines, such as Air New Zealand.
This is not the first time the airline industry has talked about combining their back-office functions in areas such as engineering and maintenance. Talks were initiated many years ago between Qantas and Ansett Australia but went nowhere because Ansett management could not agree on who would have control. Corrigan is no sentimentalist and will move heaven and earth to make such a deal work, and in the process save the airline many millions of dollars a year.
Control of Virgin Blue will change Patrick's earnings profile. If it wins 100% it will push its gearing from 8% to 103%, including Virgin's off-balance-sheet debt, according to Citigroup Smith Barney. It will also skew Patrick's earnings towards the volatile and risky airline sector.
In typical Corrigan style, the bidder's statement reveals very little of Patrick's plans for Virgin. It says it will change Virgin Blue's balance date from March 31 to September 30, keep the existing business as a passenger airline, and look at ways to reduce operating costs. It also says: "At the present time, and based on the information available to it, Pizen [the Patrick subsidiary bidding for Virgin] intends to retain the services of the senior management, operational management and other employees of Virgin Blue." Pizen also says it will conduct a review of the business and find ways to maximise the airline's operating performance.
But a company does not make a takeover bid to change the reporting date and conduct a strategic review. Patrick will no doubt look at whether to move Virgin Blue's head office from Brisbane to Sydney, revisit ways to capture the corporate market through loyalty programs that pay for themselves, and examine synergies with Patrick's stevedoring and rail businesses.
In aviation, there are few secrets. It has been widely reported that Corrigan has become disillusioned with the way Virgin Blue is being run. He is understood to be angry at the arrogance of some people at Virgin Blue, who said that if Qantas ever started a low-cost airline it would fail because it would not be able to get its cost structure as low as Virgin Blue's. But Jetstar did, and the cost structure has come down, resulting in Virgin Blue cutting ticket prices and lifting capacity to a point where it has hurt earnings.
Tensions between Godfrey and Corrigan are believed to have intensified after the sale of Godfrey's shares and Virgin Blue's second earnings downgrade in less than six months.
At Patrick's annual meeting on February 3, Corrigan will outline in detail his strategy for the company's three divisions: ports, rail and air. Although he will not go into detail about his plans for Virgin Blue if he wins control, he will face a barrage of questions from the floor about his intentions.
Patrick's web site says the company's mission is to be the first and only truly inter-modal transport company in Australia. It says Patrick is a focused transport company specialising in the loading and unloading of ships and the land-based collection, distribution and storage of cargo for import, export and within Australia. "We own and manage an integrated chain of complementary businesses: this enables us to eliminate inefficiencies along the chain and offer our customers comprehensive transport logistics solutions." If it wins more than 50% of Virgin Blue, Patrick will be able to do these things a lot more effectively than it has so far.
===========================================
Fed up, Corrigan makes his move
Patrick Corporation has lost patience with Virgin Blue's management.
By Adele Ferguson
BRW. 03 February 2005
Events on December 16 and January 19 will go down in history as the trigger points for Patrick Corporation's $1.90-a-share bid for the low-cost airline Virgin Blue. On the first of those days, Brett Godfrey, the chief executive of Virgin Blue, sold five million shares at an average price of $1.88 - never a good message for a chief executive to send to the market. And on the other day, he informed the Australian Stock Exchange that the airline's full-year results would be 10-15% below last year's.
The result was a 12% crash in the share price and renewed speculation of tensions between Godfrey and Virgin Blue's largest shareholder, Patrick Corporation.
Patrick owns 45.4% of Virgin Blue and on January 28 chief executive Chris Corrigan decided he had had enough of not being in control of the board and strategy, and bid for the remaining 54.6%. It looks likely that Virgin Blue directors will reject the offer, because the other key shareholder, Sir Richard Branson's Virgin Group, bought five million shares on the day Patrick made the bid, at an average price of $2.06. It is now up to the regulator to decide on the price. But on the basis that Godfrey thought $1.88 was a good price at which to sell his shares in December a few weeks before he warned of a profit downgrade, it would be hard to justify the offer as too low. If Patrick wins control of Virgin Blue, it will have a big effect on the airline industry, and on Patrick.
Virgin is one of the most profitable low-cost airlines in the world, but it is struggling to find new areas of growth and efficiency. If Corrigan wins control of the company he will apply economic rationalism to improve efficiency and cut costs. One of the first people he will contact is Geoff Dixon, the chief executive of Qantas. Qantas and Patrick already have a joint-venture engine shop, so it makes sense for Virgin aircraft to be put through this operation. It also makes sense to investigate sharing other back-office facilities such as maintenance and catering. This could then be extended to other airlines, such as Air New Zealand.
This is not the first time the airline industry has talked about combining their back-office functions in areas such as engineering and maintenance. Talks were initiated many years ago between Qantas and Ansett Australia but went nowhere because Ansett management could not agree on who would have control. Corrigan is no sentimentalist and will move heaven and earth to make such a deal work, and in the process save the airline many millions of dollars a year.
Control of Virgin Blue will change Patrick's earnings profile. If it wins 100% it will push its gearing from 8% to 103%, including Virgin's off-balance-sheet debt, according to Citigroup Smith Barney. It will also skew Patrick's earnings towards the volatile and risky airline sector.
In typical Corrigan style, the bidder's statement reveals very little of Patrick's plans for Virgin. It says it will change Virgin Blue's balance date from March 31 to September 30, keep the existing business as a passenger airline, and look at ways to reduce operating costs. It also says: "At the present time, and based on the information available to it, Pizen [the Patrick subsidiary bidding for Virgin] intends to retain the services of the senior management, operational management and other employees of Virgin Blue." Pizen also says it will conduct a review of the business and find ways to maximise the airline's operating performance.
But a company does not make a takeover bid to change the reporting date and conduct a strategic review. Patrick will no doubt look at whether to move Virgin Blue's head office from Brisbane to Sydney, revisit ways to capture the corporate market through loyalty programs that pay for themselves, and examine synergies with Patrick's stevedoring and rail businesses.
In aviation, there are few secrets. It has been widely reported that Corrigan has become disillusioned with the way Virgin Blue is being run. He is understood to be angry at the arrogance of some people at Virgin Blue, who said that if Qantas ever started a low-cost airline it would fail because it would not be able to get its cost structure as low as Virgin Blue's. But Jetstar did, and the cost structure has come down, resulting in Virgin Blue cutting ticket prices and lifting capacity to a point where it has hurt earnings.
Tensions between Godfrey and Corrigan are believed to have intensified after the sale of Godfrey's shares and Virgin Blue's second earnings downgrade in less than six months.
At Patrick's annual meeting on February 3, Corrigan will outline in detail his strategy for the company's three divisions: ports, rail and air. Although he will not go into detail about his plans for Virgin Blue if he wins control, he will face a barrage of questions from the floor about his intentions.
Patrick's web site says the company's mission is to be the first and only truly inter-modal transport company in Australia. It says Patrick is a focused transport company specialising in the loading and unloading of ships and the land-based collection, distribution and storage of cargo for import, export and within Australia. "We own and manage an integrated chain of complementary businesses: this enables us to eliminate inefficiencies along the chain and offer our customers comprehensive transport logistics solutions." If it wins more than 50% of Virgin Blue, Patrick will be able to do these things a lot more effectively than it has so far.
===========================================
...keep the existing business as a passenger airline, and look at ways to reduce operating costs.
My two cents is this is about two things: 1) A clash of egos and 2) Changing the VB model so that QF go longer squeeze them from both ends of the market; that is the full service QF product and the budget carrier Jetstar product. VB is in the middle ground right now. They are making money but have no where to grow.
Virgin Blue Pacific?
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Hmmm, When Corrigan gains control of the board I can imagine
1. 1st 4-5 rows converted to business class
2. Frequent flyer program implemented
3. Convert the now 'Blue Room' back to 'Golden Wing' type lounges for business travellers.
4. Join the Star alliance
1. 1st 4-5 rows converted to business class
2. Frequent flyer program implemented
3. Convert the now 'Blue Room' back to 'Golden Wing' type lounges for business travellers.
4. Join the Star alliance
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I agree Icarus. As we have all said on here many times. A corrigan/Patrick controlled VB can only mean bad news for Q. That will all but seal the deal to start Virgin Pacific (corrigan has said many times over he wants into that market). Add to that he is much more business aware than Godfey and ruthless too, it can only be a good thing for investors. OH and a bad thing for Godfrey's future.....
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I decided to be intellectual tonight and watch the 7.30 Report. They had Corrigan on it and he was less than impressed by the way Virgin is run and they also pointed out how Branson has a reputation for seeing the value of his companies shares go down. Then some gonzo share analasyst (I like the first four letters of that word!) said they had better watch themselves otherwise Virgin won't be around. Mind you he was the only one who said that, so I wouldn't worry too much.
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No I wouldnt worry too much either. A company that didnt exist 4 years ago making a $160 million odd profit, isnt to bloody bad at all. Infact any company making that would be pretty happy im sure. Lets put it into perspective. Easy jet were quoted as making around a 60 million proft (Approx?) BEFORE tax and are considered one of the most successful.
I watched the 7.30 report story also. Wasn't quite the doom and gloom as you percieved. I have known many a stock analyst in my time and depending on what view they want to have, when they read particular results, is generally the view they have no matter what.
I think the main thing here is that as long as ALL airlines learn the leasons of the Ansett era then things will be fine. If anything was demonstrated in the story, it is that Corrigan is a very smart buisness man, and as a majority shareholder he wont let things drift down those roads. If anything he will be more sound at everything.
A lot is said about the Q's profits but break it down to just domestic and even more so on routes that they are in direct competition on, and I think a lot of people would be surprised. A lot could change in the coming 12 - 18 moths there. A possible investment in singapore that may not return what they hope
(i dont think the singapore government will ever let it be what they hope.....there backyard -- their rules!), plus a new full class (Ozzie) carrier, VP, on one of there most profitable routes. SY- LA.
Well who knows. As someone else said. Corrigan knows where the profits are and how to do things so it will be very interesting when he takes full control.
I watched the 7.30 report story also. Wasn't quite the doom and gloom as you percieved. I have known many a stock analyst in my time and depending on what view they want to have, when they read particular results, is generally the view they have no matter what.
I think the main thing here is that as long as ALL airlines learn the leasons of the Ansett era then things will be fine. If anything was demonstrated in the story, it is that Corrigan is a very smart buisness man, and as a majority shareholder he wont let things drift down those roads. If anything he will be more sound at everything.
A lot is said about the Q's profits but break it down to just domestic and even more so on routes that they are in direct competition on, and I think a lot of people would be surprised. A lot could change in the coming 12 - 18 moths there. A possible investment in singapore that may not return what they hope
(i dont think the singapore government will ever let it be what they hope.....there backyard -- their rules!), plus a new full class (Ozzie) carrier, VP, on one of there most profitable routes. SY- LA.
Well who knows. As someone else said. Corrigan knows where the profits are and how to do things so it will be very interesting when he takes full control.
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The end of REAL competition?
I wonder if Corrigan is talking in code and saying to Qantas something like "we'll pull our heads in if you pull in yours"? Collusion is out but shrouded messages are not. Interesting times. eh?
Evertonian
December 16 Brett sells shares.
January 19 DJ announces profit drop.
I don't punt on the sharemarket, but don't they call that insider trading?
January 19 DJ announces profit drop.
I don't punt on the sharemarket, but don't they call that insider trading?
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Could the share price drop not be a reaction to the CEO of a company offloading shares in his own company? Surely (surely?) brett is not stupid enough to go down the insider trading path, especially after the Rene Rivkin debacle....
interesting...
interesting...
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I totally agree with you, Buster. I cannot believe more hasn't been made of Godfrey's trade in the media. If he has sold those shares as a result of knowledge that was not available to the market, then he could be in deep doo-doo.....
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go_dj's idea makes sense. Growth is limited in the Australian domestic market, so it will have to come from elsewhere. And ur2, having some hard-nosed management, working with an existing low cost structure might avoid the fate which has befallen others.
The traditional LCC model has been limited to short-haul. Even in the wider Aust/NZ/Pacific market, growth prospects are limited (Aust being by far the biggest chunk of that, so if it fills, you aren't going to get much incremental anywhere else).
So, they must look outside the back yard. Hence going long-haul has to be an option at some point.
No existing LCC has made the move from short-haul to including long-haul.
Maybe VB will be able to be the first. However, L/H pax want more than what the S/H LCCs can give them - hence the cost base has to rise.
TTBOMK, there have not been any LCCs which have made that shift. However, once again possibly starting from a LC base might make that transition easier than a FS carrier trying to go the other way; no-one's tried it yet.
DJ has marketed itself as giving punters the fair go; stopping the rip-offs, etc. but that can be a narrow corner to paint yourself into. VS kicked off with similar noises, but quietly dropped them to charge similar fares to BA and all the other competitors on its routes. Just because you have a low cost structure, doesn't mean you have to charge low prices (inby definition, shareholders would prefer you didn't).
So... we shouldn't get wedded to the idea that the LCC model can't be modified; for a LC company in a very finite market, it will have to be.
PureRisk... "bad thing for Godfrey's future" - mate if I had increased my net worth like he has, in the time frame he has, I don't think I'd give a rat's if a pink slip arrived in the post!!
The traditional LCC model has been limited to short-haul. Even in the wider Aust/NZ/Pacific market, growth prospects are limited (Aust being by far the biggest chunk of that, so if it fills, you aren't going to get much incremental anywhere else).
So, they must look outside the back yard. Hence going long-haul has to be an option at some point.
No existing LCC has made the move from short-haul to including long-haul.
Maybe VB will be able to be the first. However, L/H pax want more than what the S/H LCCs can give them - hence the cost base has to rise.
TTBOMK, there have not been any LCCs which have made that shift. However, once again possibly starting from a LC base might make that transition easier than a FS carrier trying to go the other way; no-one's tried it yet.
DJ has marketed itself as giving punters the fair go; stopping the rip-offs, etc. but that can be a narrow corner to paint yourself into. VS kicked off with similar noises, but quietly dropped them to charge similar fares to BA and all the other competitors on its routes. Just because you have a low cost structure, doesn't mean you have to charge low prices (inby definition, shareholders would prefer you didn't).
So... we shouldn't get wedded to the idea that the LCC model can't be modified; for a LC company in a very finite market, it will have to be.
PureRisk... "bad thing for Godfrey's future" - mate if I had increased my net worth like he has, in the time frame he has, I don't think I'd give a rat's if a pink slip arrived in the post!!
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Fri "The Australian"
Jetstar threat real: Corrigan
Steve Creedy, Aviation writer
February 04, 2005
PATRICK boss Chris Corrigan yesterday criticised Virgin Blue for failing to respond adequately to the threat of Qantas low-cost offshoot Jetstar, saying the takeover target now needed to modify its business model and concentrate on its domestic operations.
He also confirmed he was prepared to settle for a majority stake in the airline if he failed to take full control and had no problems with Virgin boss Richard Branson retaining his 25.1 per cent stake.
And he urged shareholders to accept his low-ball $1.90 per share offer as a "pretty fair offer in the context of the value that's placed on airlines".
Speaking after Patrick Corp's annual meeting in Sydney, the ports boss targeted the airline's falling profitability as an area of concern and warned it needed to urgently address the threat of Jetstar.
While he expressed confidence in Virgin Blue's approach to date, he warned the airline was now facing a more competitive environment.
He said Virgin Blue was caught between Jetstar's "lower fare, lower service" offering at one end and the higher fare, higher service Qantas mainline at the other.
Virgin now had to respond to those pressures and adapt its business model to the market environment. This included attracting more business travellers, and the airline was looking at a range of issues, including a frequent flyer program.
"I don't think we've done that to date as well as we could have," Mr Corrigan said. "I think we've underestimated the competitive forces that Qantas has brought against us, but I have every confidence that we can do it going forward."
His comments contrast with views expressed last week by Virgin Blue chief executive Brett Godfrey that the effect of Jetstar on the airline's recent profit downgrade had not been as great as big capacity expansion last year.
There have been suggestions of disagreements between the two executives, but the Patrick chief yesterday endorsed Mr Godfrey, saying he expected him to remain in the chief executive's seat if the logistics company took control.
He said the Virgin co-founder had done "a brilliant job in terms of bringing the airline up to a level" and he intended to work with him to bring Virgin into the new environment.
"I think he's done a fantastic job and I think he's going to be able to adapt to operating the airline in a much more competitive environment in the future," he said.
Mr Corrigan denied that the fact he did not consult with Virgin Group boss Richard Branson on the bid meant there was acrimony between the two.
"There are good legal reasons why you don't consult with anybody before you announce a bid and that was the reason," he said.
"We've worked quite successfully with the Virgin Group over the years and expect to go on doing so if they remain shareholders."
Asked about Sir Richard's purchase of 5.1 million shares, Mr Corrigan described it as "an investment banking trick that he thinks might involve us paying a bit more than we might otherwise have paid."
The parties are awaiting advice from the Australian Securities & Investments Commission about whether Patrick is bound by rules that could force it to match the $2.06 price paid by Virgin Group.
Mr Corrigan said it did not make sense for Patrick to raise its bid, and that having a beneficiary of its offer determine the price was "so absurd it's almost ridiculous".
He denied he was opposed to the airline's expansion into Asia, but said "the big picture is right here in Australia". "The principal business is the carriage of passengers domestically and that's the area that needs 99.9 per cent of our attention," he said.
==========================================
Fri "Melbourne Herald-Sun"
Virgin sounds the retreat
Heath Aston
04feb05
THE days of super-cheap domestic airfares appear numbered.
With words that will disappoint the growing army of domestic air travellers, Virgin Blue chairman Chris Corrigan yesterday signalled a retreat from the price-slashing scrap it is locked in with Qantas's budget offshoot Jetstar.
However, Virgin Blue will not abandon the low-cost approach it pioneered in Australia under the guidance of billionaire Virgin boss Richard Branson.
"We just don't want (fares) going down at the catastrophic rate they have been going down," Mr Corrigan said at the Patrick annual meeting.
Experts said if Virgin Blue opted out of the price war it was likely that Jetstar, which has offered $9 pre-tax fares, would also hike its prices.
Ian Thomas, a senior consultant at the Centre for Asia Pacific Aviation, said Virgin was more exposed to price-cutting than Qantas.
"Jetstar to date only accounts for a small part of Qantas's domestic operation," he said.
"That gives Qantas the confidence to continue this sort of strategy. That may mean that Jetstar imposes these sort of prices for a prolonged period . . . (but) if Virgin raises prices the encouragement will be there for Jetstar not to discount quite as heavily."
The damage done by Jetstar since it landed in the market last year has forced Virgin Blue to slash its profit forecast this year.
Mr Corrigan has since launched a $1.1 billion takeover bid for Virgin Blue on behalf of major shareholder Patrick Corporation.
"We have underestimated the competitive threat that Jetstar brings. We need to address that very urgently."
Mr Thomas said Virgin Blue would probably have to minimise its "fun culture" if swallowed by Patrick, a ports and rail specialist.
"Corrigan is a far more pragmatic business person, far more focused on the bottom line. I'd expect him to extract greater returns out of non-core areas of the business, perhaps freight," he said.
==========================================
Jetstar threat real: Corrigan
Steve Creedy, Aviation writer
February 04, 2005
PATRICK boss Chris Corrigan yesterday criticised Virgin Blue for failing to respond adequately to the threat of Qantas low-cost offshoot Jetstar, saying the takeover target now needed to modify its business model and concentrate on its domestic operations.
He also confirmed he was prepared to settle for a majority stake in the airline if he failed to take full control and had no problems with Virgin boss Richard Branson retaining his 25.1 per cent stake.
And he urged shareholders to accept his low-ball $1.90 per share offer as a "pretty fair offer in the context of the value that's placed on airlines".
Speaking after Patrick Corp's annual meeting in Sydney, the ports boss targeted the airline's falling profitability as an area of concern and warned it needed to urgently address the threat of Jetstar.
While he expressed confidence in Virgin Blue's approach to date, he warned the airline was now facing a more competitive environment.
He said Virgin Blue was caught between Jetstar's "lower fare, lower service" offering at one end and the higher fare, higher service Qantas mainline at the other.
Virgin now had to respond to those pressures and adapt its business model to the market environment. This included attracting more business travellers, and the airline was looking at a range of issues, including a frequent flyer program.
"I don't think we've done that to date as well as we could have," Mr Corrigan said. "I think we've underestimated the competitive forces that Qantas has brought against us, but I have every confidence that we can do it going forward."
His comments contrast with views expressed last week by Virgin Blue chief executive Brett Godfrey that the effect of Jetstar on the airline's recent profit downgrade had not been as great as big capacity expansion last year.
There have been suggestions of disagreements between the two executives, but the Patrick chief yesterday endorsed Mr Godfrey, saying he expected him to remain in the chief executive's seat if the logistics company took control.
He said the Virgin co-founder had done "a brilliant job in terms of bringing the airline up to a level" and he intended to work with him to bring Virgin into the new environment.
"I think he's done a fantastic job and I think he's going to be able to adapt to operating the airline in a much more competitive environment in the future," he said.
Mr Corrigan denied that the fact he did not consult with Virgin Group boss Richard Branson on the bid meant there was acrimony between the two.
"There are good legal reasons why you don't consult with anybody before you announce a bid and that was the reason," he said.
"We've worked quite successfully with the Virgin Group over the years and expect to go on doing so if they remain shareholders."
Asked about Sir Richard's purchase of 5.1 million shares, Mr Corrigan described it as "an investment banking trick that he thinks might involve us paying a bit more than we might otherwise have paid."
The parties are awaiting advice from the Australian Securities & Investments Commission about whether Patrick is bound by rules that could force it to match the $2.06 price paid by Virgin Group.
Mr Corrigan said it did not make sense for Patrick to raise its bid, and that having a beneficiary of its offer determine the price was "so absurd it's almost ridiculous".
He denied he was opposed to the airline's expansion into Asia, but said "the big picture is right here in Australia". "The principal business is the carriage of passengers domestically and that's the area that needs 99.9 per cent of our attention," he said.
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Fri "Melbourne Herald-Sun"
Virgin sounds the retreat
Heath Aston
04feb05
THE days of super-cheap domestic airfares appear numbered.
With words that will disappoint the growing army of domestic air travellers, Virgin Blue chairman Chris Corrigan yesterday signalled a retreat from the price-slashing scrap it is locked in with Qantas's budget offshoot Jetstar.
However, Virgin Blue will not abandon the low-cost approach it pioneered in Australia under the guidance of billionaire Virgin boss Richard Branson.
"We just don't want (fares) going down at the catastrophic rate they have been going down," Mr Corrigan said at the Patrick annual meeting.
Experts said if Virgin Blue opted out of the price war it was likely that Jetstar, which has offered $9 pre-tax fares, would also hike its prices.
Ian Thomas, a senior consultant at the Centre for Asia Pacific Aviation, said Virgin was more exposed to price-cutting than Qantas.
"Jetstar to date only accounts for a small part of Qantas's domestic operation," he said.
"That gives Qantas the confidence to continue this sort of strategy. That may mean that Jetstar imposes these sort of prices for a prolonged period . . . (but) if Virgin raises prices the encouragement will be there for Jetstar not to discount quite as heavily."
The damage done by Jetstar since it landed in the market last year has forced Virgin Blue to slash its profit forecast this year.
Mr Corrigan has since launched a $1.1 billion takeover bid for Virgin Blue on behalf of major shareholder Patrick Corporation.
"We have underestimated the competitive threat that Jetstar brings. We need to address that very urgently."
Mr Thomas said Virgin Blue would probably have to minimise its "fun culture" if swallowed by Patrick, a ports and rail specialist.
"Corrigan is a far more pragmatic business person, far more focused on the bottom line. I'd expect him to extract greater returns out of non-core areas of the business, perhaps freight," he said.
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Last edited by Wirraway; 3rd Feb 2005 at 13:58.