Is it a matter of shoring up its own books or quitting on its partner’s plans? Either way, Air New Zealand is set to walk away from Virgin Australia, giving up its seat on the board and is looking at options for its 26% stake, including a sale. The move comes as Virgin Australia is showing signs of profitability but also questions have arisen about its balance sheet, including loans taken to shore up the books and expansion plans.
Read More: Air New Zealand flags $350m sale of its Virgin Australia stake
For Air New Zealand a sale of its stake likely means a net loss on the investment, to the tune of NZD$130mm or more; NZD$70mm has already been written off but the Virgin Australia stock price is flagging and remains below the original investment price Air New Zealand paid. Of course, this is not the first time Air New Zealand has walked away from the Australian aviation market with a black eye. The company invested hundreds of millions of dollars in Ansett and then watched that collapse completely. The current situation does not appear to be as bad but, well, it is not good either.
Air New Zealand is facing a significant increase in competition a home, with Emirates launching nonstop service recently to Dubai (in addition to the multiple frequencies connecting via Australia) and also Qatar Airways adding service later this year. Singapore Airlines is also increasing traffic, though that is in partnership with ANZ, not directly in competition with it. Crossing the Pacific will also see increased competition with American Airlines launching service later this year and United Airlines also inaugurating Auckland service, though that is also expected to be a joint venture. Having a bit more cash on hand certainly won’t hurt as the company works to maintain its position in the market, though cutting off the significant feed it gets from Virgin Australia as a partner is unlikely to help on the revenue side of things.
It also raises the question of who wants to invest a few hundred million dollars in the Australian aviation market. Delta and Virgin Australia have a nice partnership and Delta certainly has spare cash right now after showing record profits of late. And it has shown a willingness to invest on a global scale, with positions in Latin America, Europe and China. But that would also mean going in on ownership with Etihad and Singapore Airlines. Such an arrangement could prove to be politically challenging.
Definitely interesting times ahead in the aviation world down under.
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It seems to me that Virgin America and Australia are struggling which is a pity beacause there such airlines to fly on. I hope they both better in the future we need more airlines that a great to fly with