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Thu 9 May 2013 04:46 PM

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Etihad could double stake in Virgin Australia

Such a move would be to compete against the new Emirates and Qantas alliance

Etihad could double stake in Virgin Australia
Etihad Airways

Etihad Airways could more than double its stake in Virgin Australia, a strategically important airline partner, in a move to compete against the new alliance between Emirates and Qantas.

Virgin Group chief Richard Branson this week hinted he would sell his remaining 13 percent share in the Australian-based international airline after recently selling 10 percent to Singapore Airlines, taking that carrier’s holding to 19.9 percent.

"We will see," the British billionaire said in Perth when asked if he would keep his remaining share.

“The 13 percent is pretty strategic in that it could be very valuable to a player one day, but it’s not that important from the Virgin Group’s point of view.”

Etihad owns about 9 percent of Virgin Australia, but with Air New Zealand also owning 19.99 percent, the Abu Dhabi-based carrier’s influence in the company has been significantly diluted since it first invested in it in June 2011.

The recent alliance between Dubai-based Emirates and the Australian national carrier, which created an extremely strong partnership that has rattled the international airline industry, also makes Etihad’s partnerships even more vital to its future growth and to remain competitive.

When asked if he would sell to Etihad, Branson said: “We would cross that bridge if it came”.

Analysts in Australia said Etihad was the most logical buyer because of the strategic importance of its alliance with Virgin.

The Centre for Asia Pacific Aviation said in an analysis piece that Singapore Airlines’ share boost would have surprised Etihad, which would be keen to increase its own stake in the airline due to its strategic importance.

“Etihad is unlikely to walk away from an alliance that provides feeder traffic from an important and growing Australian market,” CAPA said.

“Likewise, selling its stake in Virgin Australia would only serve to strengthen [Singapore Airline’s] hand and influence over Virgin Australia’s long-haul alliance strategy.”

An Etihad spokesperson said the airline did not comment on its shareholder activity, but confirmed the partnership with Virgin Australia was important.

“We have a very strong relationship with Virgin Australia which has been built up over several years and continues to deliver significant benefits to both airlines," the spokesperson said.

Etihad also recently bought 24 percent of India’s Jet Airways and has stakes in Air Berlin, Air Seychelles and Air Lingus.

Australian foreign ownership laws mean any purchase of Virgin Australia shares by Etihad would need to be approved, although given the other airlines have larger stakes it would likely be successful.

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