Etihad Airways has been cleared by the Australian government to up its equity stake in Virgin Australia from the current 4.99% it bought earlier this year to a maximum of 10%! This will give Virgin Australia even more foreign ownership with 10% owned by Etihad, 19.9% by Air New Zealand, and 26% by Richard Branson’s UK based Virgin Group, for a total foreign ownership of 55.9%. Note that as of 2012, the Australia Foreign Investment policy capped foreign ownership at 49%, how this will work would require by law a reduction of ownership by one of the other shareholders, unless the Foreign Investment Review Board (FIRB)makes an exception. However despite the fact that an increase stake to 10% by Etihad would raise foreign ownership above the 49% threshold, the FIRB has cleared the way for an increased investment, stating that Etihad has had a 10-year partnership with Virgin.
Currently, the codeshare between Australia and Abu Dhabi includes 24 flights a week and connects Sydney, Brisbane and Melbourne, with plans to launch a Perth flight in the near future. Between the Virgin Australia network and the larger global Etihad network, the combined carriers connect passengers to over 285 destinations across the world. Since the partnership was formed, new flights have been launched, the first in 2007, and nearly 2 million have flown with Etihad Airways between Australia and its Abu Dhabi hub. Furthermore, Etihad estimates that their passengers have spent close to $1.5 billion on the local Australian tourism industry since 2007, providing a nice boost to the economy!
As Virgin celebrates this new investment in their product from the multi-award winning airlines, Qantas has been doing everything possible to lobby against further investments from Etihad. Last month Qantas reportedly lobbied government and opposition politicians about Etihad’s desire to invest in Virgin, warning that the Abu Dhabi-based carrier would “cross-subsidies Virgin’s domestic business with the specific aim of weakening Qantas”.
Despite the approval, I do not believe we have heard the end of the complaining form Qantas, as they are constrained from foreign ownership by the Qantas Sale Act. Yet in the meantime, Etihad is going to celebrate their victory and per Etihad, ”It is expected that the equity stake in Virgin Australia will lead to further revenue generating opportunities,”….and “We look forward to building on this long and prosperous relationship.”
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