HNA’s $8.5bn Hilton play gives lift to Virgin strategy

HNA Group’s play for 25 per cent of Hilton will give Virgin Australia a new reason to exploit its China strategy.

Virgin Australia chief executive John Borghetti. Picture: Renee Nowytarger

The $US6.5 billion ($8.5bn) play by China’s aviation and shipping giant, HNA Group, to buy a 25 per cent stake in Hilton Worldwide Holdings will give Virgin Australia a brand new reason to make the most of its China strategy.

HNA is on an acquisition spree in travel-related businesses, having forked out more than $US20bn in recent years on assets including the Minneapolis-based Carlson Hotels and its majority stake in Rezidor Hotel Group, a minority stake in Red Lion Hotels, and an agreement to buy the aircraft-leasing arm of CIT Group for $US4bn.

Last year, the Chinese conglomerate also agreed to buy airport luggage handler Swissport International from PAI Partners SAS for $US2.8bn and in April it bought Gategroup Holdings, the world’s second-biggest airline catering company, for $US1.5bn.

The latest deal to take a stake in Hilton will help HNA and the hotel chain tap China’s fast-growing outbound tourism market and provide a new and lucrative avenue for Virgin chief John Borghetti, who has described China as “the future of Virgin”.

HNA sent a lifeline to Virgin Australia in May when it announced its intent to take a 20 per cent holding in the cash-strapped airline.

As the owner of China’s fourth-biggest carrier in Hainan Airlines, HNA’s strategic involvement in Virgin is of utmost importance to the airline’s future in pivoting to China and its burgeoning market of cashed-up middle-class tourists. Virgin and HNA continue to work through the details of that alliance, with Mr Borghetti in regular contact with his Chinese partners. The agreement with HNA covers code sharing, loyalty programs, lounge access and promotion of tourism and business travel.

Virgin may also lease aircraft from HNA to fly to China.

Virgin and HNA have also applied to Australia’s competition regulator to establish a commercial partnership and alliance, which will include Virgin operating flights to Beijing and Hong Kong from June 1 next year that will add close to 2000 seats a week on China routes.

More importantly to Mr Borghetti, it gives Virgin access to HNA’s many other assets.

“What a lot of people haven’t clicked on to is that this isn’t just about the airline-to-airline side — this is about all the other businesses that HNA own, from catering to ground handling, you name it,” Mr Borghetti told The Australian earlier this year.