The Virgins move closer to the Star Alliance

One of the interesting trends we’ve seen this year is the airline industry is the pressure for traditionally “independent” airlines to join an alliance. It all started with Qantas and Emirates announcing a massive joint venture, which for Qantas seems to take priority over the OneWorld alliance. Then we saw Qatar Airways announce they’ll be joining the OneWorld alliance, which is a huge move, since up until now the “big three” Middle Eastern airlines have done everything they can to avoid it.

Then just last week Richard Branson announced that Virgin Atlantic is seriously considering joining an alliance, something they think they need in order to survive. I’m convinced they’ll join Star Alliance, in part for the reasons I described in that post:

By far the most logical choice for Virgin Atlantic would be Star Alliance, in my opinion. As it stands, Virgin Atlantic is 49% owned by Singapore Airlines, and partners with a handful of Star Alliance airlines. British Midland (a Star Alliance member at the time) was recently taken over by British Airways, so Star Alliance now doesn’t have an airline based in London. OneWorld is completely out of the picture given that British Airways belongs to it, which leaves SkyTeam. While I’m sure SkyTeam would like to have Virgin Atlantic, I’m not sure how much value they could add for Virgin Atlantic.

Well today some more news was announced that brings the entire Virgin brand a whole lot closer to the Star Alliance. Via BBC, Singapore Airlines just purchased a 10% stake in Virgin Australia, while Virgin Australia purchased a 60% stake in Tiger Airways, Singapore’s struggling Australian carrier.

While this is hardly conclusive, I do think this suggests that the entire Virgin brand is moving towards the Star Alliance. Both Virgin Atlantic and Virgin Australia could add a lot of value to the Star Alliance, so I wouldn’t be surprised to see them both eventually join. I think the reasons for Virgin Atlantic joining are obvious, though even Virgin Australia could add a lot of value given how weak the Star Alliance is in Australia. As far as Virgin America goes, well, I suspect they’ll be out of business before any of this happens given their financial results.

What do you guys think?

Comments

  1. http://blogs.crikey.com.au/planetalking/2012/10/30/virgin-australia-ceo-promises-much-more-by-way-of-deals/#comment-14016. Lucky a bit more to come!!! Virgin America not gonna go bust! and I will say it again SA-Virgin Group-AirNZ. You need a good domestic network to feed international and SA dosen’t have one but the others do and VS has started doemstic UK flights with EU flights staring Feb 13. Qantas and SA have always hated each other and will fight to the death. Foirsty and J airfares have been falling in this part of the world especially the last 6 months and where is SA going to put all it’s 787’s? My money’s into Australia and hub from Singapore to where ever? This tie up effectively gives SA what it has been after for 20 years fifth rights to fly AUS-USA. It might not be Star it could be there own!!!!

  2. Oh who is the largest share holder in Virgin America and who is their largest share holder? SA did we forget this and how much did AA lose under the protection of Chapter 11? The next qtr for them is still going to show a loss. In my simple understanding of corporate and tax laws in the USA you can write of capital investment much faster than just about any where on earth even if you are still paying them of. Enough Bombay I have to eat.

  3. I had my money on SkyTeam but maybe this could be a way for SQ to boost the value of VA in order to try and offload it. I think it’s well known they don’t think the world of their investment here.

    However the Virgin “brand” does not seem to work very well across the brand. Maybe they are finally making a co-ordinated effort to join the same alliance. That would make a lot of sense

  4. As a loyal Delta flyer, I’d be REALLY upset to see the Virgins join *A. SkyTeam really needs to step up their game. Saudia? MEA? Really???

  5. Being hub-tied to Delta and SkyTeam, I’d really hate to lose the Virgin Australia tie in that seemed to be getting stronger and stronger.

    I guess I need to go on and get my SkyMiles balance up to what I need for a business class redemption for 2 and get down under ASAP!

  6. Don’t assume the obvious is my advice. SQ have never really fully engaged with *A, so are a bit of a red herring.

    Expect either a newish alliance to set up with some of the above and NZ joining them, or more likely based on noises coming from VS, Skyteam.

  7. This would be great if they joined *A. Skyteam is the “leftover” alliance!

    @Typhoon: Why would they start their own alliance? Why reinvent the wheel?

  8. Typhoon is correct–this indicates nothing about whether the Virgin’s are Star-bound.

    This is a way for SQ to save face on their miserable attempt to compete in AU with Tiger. All things being equal, this is little more than a divestment of an underperforming asset coupled with a purchase that SQ probably wanted to make for years but was unable to do until recently (i.e., the former structure of VA used to make it impossible for foreign ownership to exceed AU ownership).

  9. VX going out of business? You are off your rocker. They have the best airline product in the U.S. If the legacy carriers would stop blocking their entry and expansion into U.S. airports, people would get the opportunity to enjoy flying again.

  10. I have a feeling it may not be Star .. SQ already hinted at leaving Star as it has alot of East Asian carriers now (Eva joining next year)…I think we are definitely moving towards a fourth global alliance now

  11. Hrmmm I was about to transfer Virgin Atlantic Miles to Hilton at 1:2 ratio but if they join Star Alliance I can see 50K VA miles be worth a lot more than 100K Hilton points..I’m hoping 50K can be a one way on business class to Europe on a non-VA…what do you think Lucky?

  12. My theory is there is really only room for 2 or 3 really big airlines in an alliance. Star doesn’t really need VS does it?

  13. @ Ben — It doesn’t matter how good their product is, they’re not making money.

    @ Jeremy — Well nothing is set in stone yet, so maybe they are mad and will veto if it comes down to it.

    @ Ryan from MA — I’d still make the transfer. If they join an alliance it will likely be years before its formalized, and I doubt they’d have a very good redemption chart anyway. Hilton at a 1:2 ratio is a great deal.

    @ dmodemd — That’s Virgin America. I’m sure they’ll be out of business before any of this happens.

    @ Nick — Perhaps, though often the advantage of an airline joining an alliance is that they’re NOT joining another alliance. In other words, Virgin Atlantic said they need to join an alliance. Are Star Alliance carriers better off letting them join, or instead letting them join the competition at SkyTeam?

  14. @Duncan. All SQ 787s on order will go to Scoot. It was in the Straits Times sometime in the last couple of weeks.

  15. Thanks lucky! It takes that long? So Eva will take a while too to be formally a part of the system?

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