Virgin Blue weighs Air Macau takeover option

PUBLISHED : Wednesday, 22 September, 2004, 12:00am
UPDATED : Wednesday, 22 September, 2004, 12:00am

Australian no-frills airline Virgin Blue could assume management control of Air Macau under one option being discussed for its proposed launch of a new China-focused airline from Macau.

Virgin Blue has been in talks for several months with Air Macau and majority shareholder China National Aviation Corp (CNAC).

Last week Virgin Blue sent a seven-member advance team to Macau, where it met Air Macau managers. A source said the Virgin Blue team saw '[Air Macau's] technical and engineering teams during the visit, not spending much time with the commercial managers and planners'. It also sat down with officials from the Macau Civil Aviation Administration.

Macau-based sources said several options were being discussed, such as Air Macau's possible absorption into the new Virgin operation, tentatively named Virgin Macau Airways.

Other possibilities include substantial royalty payments and shares in the new carrier for Air Macau, which must be induced to waive its 25-year monopoly over Macau-based airline operations before a new carrier could be launched. Air Macau has 16 years remaining in its monopoly, granted in 1995.

Without a merger, a competing Virgin Blue could threaten Air Macau's routes, including its most lucrative one to Shanghai.

Virgin Blue commercial chief David Huttner confirmed the visit but played it down, saying the group did not include himself or chief executive Brett Godfrey.

'Certainly we are continuing to explore things [in Macau]. And as we keep talking, there will be more such trips to Macau. But there's no agreement at this time, nor is there anything to indicate that we will have an agreement soon,' Mr Huttner said.

'We will continue this process until we reach an agreement that is in the best interests of our shareholders, or else we will not do one at all.'

Other Virgin sources stressed that while a merger had been discussed, it could be difficult given the 'inherently different management culture in low-cost airlines'.

CNAC sources said the carrier's senior executives were pushing for the deal but had encountered resistance from some Macau-based executives who opposed ceding control of the Macau market to other carriers.

Air Macau's monopoly concession has proved a daunting barrier for aspiring aviation start-ups in the city, despite Macau being recognised as an ideal base given its casino-led tourism expansion, growing demand for air cargo capacity in the Pearl River Delta and low operating costs.

No-frills carrier AirAsia decided to launch flights between Bangkok and Macau earlier this year but other projects have had difficulty becoming airborne.

A similar bid by Irish low-cost carrier Ryanair to take control of Air Macau fell apart last year. Earlier negotiations with DHL to set up a cargo airline in Macau also ended in failure after two years of talks.

In its favour, Macau has a large store of unused air rights.

Macau has air rights to 31 mainland cities while Air Macau operates scheduled services to just nine. It also services just three of the 42 countries and territories (the Philippines, Taiwan and Thailand) with which Macau has signed air services agreements.