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Qantas Airways is operated as part of the publicly listed Qantas Group. It is the national airline of Australia with major hubs in Sydney and Melbourne and secondary hubs in Perth and Brisbane. Utilising a large fleet of narrow and wide-body Airbus and Boeing aircraft, Qantas operates an extensive domestic and international network, with services to New Zealand, the Americas, Asia, South Africa and Europe. Regional services are provided by subsidiary, QantasLink. Qantas is a founding member of the oneworld alliance.
Location of Qantas Airways main hub (Sydney Kingsford Smith Airport)
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The past month has been, as the Chinese might say, an interesting time for Virgin Australia. Two major new Chinese shareholders, HNA and Nanshan Group, an aggravated departure by one shareholder and now the announcement of a major restructuring, delivered to an unsuspecting world at 30 minutes’ notice, seemingly leaving behind its (previously) largest shareholder, Etihad – this has all occurred in a blur.
A financial restructuring has been in the wind for some time, but there was little to explain the breathless announcement of a one-for-one share issue on 15-Jun-2016. This involves a fully underwritten AUD852 million equity raising; together with a previously announced proposed AUD159 million placement to HNA Innovation, the total amount raised will slightly exceed AUD1 billion.
It sounds like good news for a cash-strapped Virgin Australia, but working out the winners and losers is more challenging as the dust settles.
Key speakers and agenda topics for the CAPA Australia Pacific Summit 2016 have been unveiled, featuring an extensive initial line-up of local and foreign airline and airport CEOs, industry regulators, technology experts and industry leaders. The Summit will be held at the Brisbane Convention and Exhibition Centre on 3-5 August and is proudly hosted by Brisbane Marketing and Foundation Partner, Brisbane Airport Corporation.
The biggest aviation and travel strategy Summit of the year, it comprises five events in one:
- Airport Innovation Summit, 3 August
- Training & Safety Summit, 3 August
- Corporate Travel innovation Summit, 4 August
- Australia Pacific Aviation Summit, 4-5 August
- CAPA Gala Dinner, 4 August
HNA/Hainan Airlines' 13% stake in Virgin Australia for USD114 million expands HNA's equity airline network outside mainland China to nine airlines on five continents – two airlines more than Etihad has invested in. Even once HNA grows the Virgin Australia stake to 19.99%, as it intends, it will not be HNA's largest in equity or percentage; but it is the most momentous and strategically important yet. It is accompanied by a strategic alliance, subject to approval, through which Virgin Australia will fly to mainland China and Hong Kong.
HNA's past investments have either not met their originally anticipated strategic value (Aigle Azur) or are airlines (Africa World, Comair) that do not have HNA services and are unlikely to be significant in the near future. HNA's Virgin stake is different: Australia is China's largest outbound long haul market after the US but Hainan has had a limited presence. Hainan has previously focused on the US market while regulatory constraints (in both mainland China and Hong Kong) and lack of partnerships have restricted growth.
Air New Zealand to sell Virgin Australia stake to fund expansion: Chengdu could be next after Manila
Air New Zealand has been on a long haul growth streak, opening five destinations since 2015. Manila was most recently announced and Chengdu could be next, once again giving Air NZ two destinations in mainland China after exiting Beijing. Chengdu as a destination – or another city – would mean that Air New Zealand would serve more points in Asia than Qantas.
Globally, Air NZ is catching up to Qantas for destinations outside Australia/New Zealand/Pacific Islands. In 2006 Qantas served 21 points outside the region and in 2016 serves 18, although this is an increase from the situations in recent years. Where Qantas has cut, Air New Zealand has grown, increasing from 10 long haul destinations in 2006 to 16 (if Chengdu is included) in 2016. With Air New Zealand due to receive nine 787-9s through 2019, with only some of those due to replace existing aircraft, the airline could serve more points than Qantas. A sale of Air NZ's stake in Virgin Australia could pay the cost of three widebody aircraft and possibly accelerate Air NZ's growth even more. Qantas will remain bigger for number of flights and seats. Qantas offers upwards of five daily flights to Singapore whereas Air NZ offers just one.
Virgin Australia's future is fundamentally sound, but ownership uncertainty was introduced after Air New Zealand flagged the potential sale of either part, or all, of its 25.99% stake in the airline. Air New Zealand CEO, Christopher Luxon, has been the only shareholder to state publicly that Virgin "needs to get profitable", and he was reported to have called for Virgin Australia CEO John Borghetti to resign before his own departure from the board. Chairman Elizabeth Bryan equally, reportedly rejected the call.
The announcement leaves the door open to another airline joining the share register, or for existing shareholders Etihad and Singapore Airlines to increase their holdings - or even a possible full takeover and subsequent delisting of the airline. Singapore Airlines has the most obvious strategic investment in Australia and the funds to easily acquire and recapitalise Virgin and therefore favourite to move. But this is far from certain; no public indications have been made and (though unlikely) it is possible that no buyer is interested.
China may be the story for the great outbound travel boom, but its neighbour Japan is the home for inbound visitor growth. Despite being one of the world's most populous nations, with a high GDP and rich culture, Japan has hardly registered with visitor arrivals. That is quickly changing. Between 2010 and 2015 Japan added 11 million annual visitors. Japan ended 2015 with 19.7 million visitors, five years ahead of its goal to have 20 million visitors in 2020. Tokyo has now doubled its goals: by 2020, Japan wants another 20 million, and then 30 million more in the next decade after that. Before the end of the decade, Japan expects to crack the list of 10 most popular countries for tourism. By 2030, it could be in the top five.
China and other Asian markets are driving most of the growth: in early 2016, they account for 87% of visitor arrivals, up from 62% in 1998. Long haul markets to Europe, North America and Australia/New Zealand have experienced a corresponding decrease. Japan's new tourism goal is to rebalance and gain stronger growth from these long haul markets. Yet the capacity is not there.
Overall long haul capacity has been reduced over recent years. Virgin Atlantic and Austrian cancelled service while Iberia and LOT enter, yet Air France-KLM and Lufthansa are making steep reductions. American Airlines has added a flight but Delta is withdrawing more long haul capacity in 2016 than any airline. Japan may consider re-evaluating the joint ventures it has approved, or to be more liberal with fifth freedom rights.