During a whirlwind tour of Australia, Richard Branson announced that Virgin Australia would start mid-year with five Boeing 737s that could quickly grow. Focusing initially on the busy Sydney-Brisbane-Melbourne triangle, Branson vows to offer at least half of all one-way tickets at less than A$100 ($63).
Branson has been looking for a Southern Hemisphere opportunity to offset the seasonality of Virgin Express in Europe. After considering South Africa, he apparently found that Australia fitted the bill better. As part of this global strategy, Virgin plans to ferry aircraft back and forth to exploit the alternating high seasons in both hemispheres.
Brett Godfrey, a native of Sydney, will be Virgin Australia's chief executive. He has been with Virgin for several years, most recently as chief financial officer of Virgin Express Holdings.
Some analysts are sceptical about how serious Virgin is, pointing to Branson's pledge of only A$48 million in initial capital. Virgin is reticent about the new airline's structure, prompting speculation that it may follow the pattern of other joint ventures in which Virgin lends its name and publicity and leaves most funding to its partners.
In Australia, that could mean one or more local ventures that had been planning their own start-ups. Two of these are still only paper airlines, but Sydney-based Impulse Air is an already successful regional. Impulse has been preparing its own A$100 million offering as a springboard from turboprops to jets. According to local reports, Impulse is now talking to Virgin.
Virgin is taking advantage of a recent change in Australian law. Last June, Canberra relaxed ownership rules, allowing foreigners to own up to 100% of a domestic airline. It can still block such a purchase if it is "contrary to the national interest", but Canberra has already ruled that Virgin's plan to start a third airline is in Australia's best interest.
Virgin is also making progress in airport slots. To compete for business travellers, it needs peak hour slots. These are in short supply at Sydney, but the airport has already tentatively awarded Virgin some peak positions.
That leaves the thorny issue of terminal access, a legacy of Canberra's decision years ago to grant long-term leases to incumbent airlines. This is not a problem at Brisbane, but Sydney has only a small common-user terminal and Melbourne has no spare gates except in its international terminal on an ad hoc basis.
Anticipating this, Virgin met all the major airports well before Branson's announcement. Each of them is eager to be Virgin's base. To that end, Melbourne has since announced it may build a new common-user terminal.
All analysts agree that Virgin is the most likely to succeed of any Australian start-up since deregulation. Compass I and II were undercapitalised, never resolved the terminal access problem, and were not prepared for the incumbents' counter-attack. Qantas has already vowed it will match any fare that Virgin offers. Geoff Dixon, Qantas deputy chief executive, says: "We will have a very, very vigorous response."
Undaunted, Branson predicts Virgin Australia will show a profit in three years.
Source: Airline Business