Air New Zealand increased its stake in Virgin Australia last month to cement their alliance and prevent other foreign airlines from disrupting their plans, says its CEO Rob Fyfe.
In September, the Star Alliance carrier said it had reached an agreement to pay up to Australian dollar (A$) 32.8 million for a maximum 5% stake in the Australian carrier. This will lift its holding to at least 19.99% from the 14.99% it bought in January.
The two airlines received approval to start their trans-Tasman alliance in late 2010, allowing them to operate joint flights and share revenues on the services between Australia and New Zealand. They also have a codeshare agreement for domestic services, giving them a network comparable to the dominant player Qantas Airways.
Fyfe said that after evaluating options for expanding its reach in the Australian market, Air New Zealand decided that the alliance with, and investment in, Virgin Australia was its best move.
"The alliance was an important strategic position that helps us to present our customers with a comparable network with our main competitor, the Qantas-Jetstar Group," said Fyfe in an interview.
"We then determined that the alliance would be assisted if no other airline could come in and take a stake in Virgin Australia, and draw its attention away from Air New Zealand. Increasing our stake, which also pushes the foreign ownership in Virgin Australia to the regulatory limit of 49%, precludes any other airline. So the investment was partly a defensive move to lock in a mutually beneficial relationship."
A secondary reason, said Fyfe, was Air New Zealand's confidence in the strategy Virgin Australia has been pursing since John Borghetti became its CEO in May 2010.
Since then, the Australian carrier has pulled out of the New Zealand domestic market, reviewed strategy at home to focus on the business market with a premium product and widebody aircraft, ordered ATR 72-500s and removed Embraer E-170s from its fleet to boost profitability, and inked alliances with Singapore Airlines, Delta Air Lines and Etihad Airways to grow its international network.
"Three years ago, they were very expansionist. But John Borghetti has a different strategy that is to grow through alliances and not through their own capital and aircraft. They are clearly looking to grow their position by enhancing their appeal to the business market and broaden their customer appeal. That makes sense," said Fyfe.
"We think John Borghetti is a very competent CEO, we are very positive about their strategy, and our interest also reflects the view that the share price is undervalued and there is a lot of upside potential."
Source: Air Transport Intelligence news
