Virgin's new threat to Qantas

Virgin has become a stalking horse for Qantas's powerful competitors

The old truism about the Australian airline industry is that the market is big enough for about one and a half airlines.

Qantas (QAN) has always emerged triumphant, as evidenced by the headstones from the likes of Ansett, Compass and every other upstart littering the corporate cemetery.

That is no longer the case.  Virgin Australia (VAH) rapidly is becoming a stalking horse for Qantas’s global competitors, who now appear intent on inflicting maximum pain on the Flying Kangaroo.

Singapore Airlines, Air New Zealand and Etihad – which hold around 52% of the stock between them – have tightened their grip further on Virgin Australia, after this morning agreeing to tip in $90 million in unsecured funding to the floundering airline.

Richard Branson’s Virgin Group, which holds just 13% after selling down its stake, was not part of the lending syndicate.

There is no doubt the struggling airline needs the cash. After a year of expansions – the Tiger Airways and SkyWest purchases – coupled with intense domestic competition and lower than expected revenue, Virgin Australia would be hurting badly if not for the support offered by its well-heeled backers.

The indefatigable John Borghetti was his usual upbeat self this morning, after delivering a $98.1 million loss, with an extraordinarily lengthy statement that outlined the strength of the company’s financial position and its rosy future.

There is no denying though that revenue increased by a mere 2.6% last year, following weaker than expected trading.

In addition to the acquisition costs, the introduction of its new global booking system – which crashed in spectacular style a few weeks ago – added around $25 million in ancillary costs and lost business during the cross-over.

But even on an underlying basis, Virgin Australia’s losses mounted to $72.8 million.

Borghetti claims the company lifted yield and loads through July and now has the ability to “compete vigorously in all key market segments and achieve sustainable performance in the future”.

That doesn’t bode well for Qantas.

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