Virgin to start China, Hong Kong flights next year

Virgin Australia is advancing plans to begin flying to China and Hong Kong later next year.

Virgin Australia chief executive John Borghetti.

Virgin Australia (VAH) is advancing plans to begin flying to China and Hong Kong later next year with the airline increasingly setting its sights on Asia and its burgeoning middle classes.

Virgin chief executive John Borghetti plans to hold talks with one of its new Chinese investors, Nanshan Group, in the coming weeks to explore how a strategic alliance between the two companies could play out.

Mr Borghetti’s comments come as Virgin is on the cusp of becoming 40 per cent-owned by Chinese investors after HNA and Nanshan Group separately bought into the airline.

Both Chinese companies are expected to be offered a seat each on the Virgin board.

Nanshan has sprawling interests in aluminium and property, as well as its own Qingdao Airlines, while HNA is the owner of China’s fourth-biggest carrier, Hainan Airlines.

Virgin has applied to the International Air Services Commission to add close to 2000 seats per week on China routes, plus seven flights a week to Hong Kong.

While both Nanshan and HNA hold stakes in Chinese carriers, Mr Borghetti said HNA in particular would play a pivotal role in Virgin’s future.

“China will be very important to us going forward and that’s why it’s great to have HNA on board,” Mr Borghetti told The Australian.

“We have applied for the rights and got them in Australia, but now there is a lot of other work to be done to get the slots and everything else in line before we go there.”

As part of its tie-up with HNA, Virgin plans on flying to Beijing and Hong Kong later next year.

Speaking on the sidelines of a media event in Los Angeles this week to unveil the carrier’s new business class cabin, Mr Borghetti said the support of the two companies was proof Virgin remained a serious player in Australia’s ultra-competitive airline market.

“Not many airlines in the world have five other airlines investing in them,” he said.

The addition of Nanshan came after it bought out 19.98 per cent of Air New Zealand’s stake when the Kiwi carrier’s chief executive, Christopher Luxon, dramatically resigned following an unsuccessful attempt to oust Mr Borghetti.

Nanshan will be joined on the Virgin board by HNA Group, which has been promised a seat for taking a 13 per cent stake in the airline for $159 million.

“Air New Zealand left the register and we had two new ones come in,” Mr Borghetti said.

“So one has to conclude from that there is a strategic benefit and they see it as a good business; otherwise they would not be doing it.”

Meanwhile, he declined to be drawn on how many jobs would be cut from the Virgin business as it looks to hit $300m in annualised savings by 2019, but said he would not take a “slash and burn” approach.

“This is not a mass redundancy program. There is a streamlining of management tiers and numbers and that is being worked through as we speak,” he said.

“We know we need to streamline management, we have a ballpark view of how that can be but, in terms of the staff, it’s really a question of making efficiencies come through.”

The firming up of its Chinese investors comes as questions hang over Etihad Airways’ commitment to Virgin.

An $852m raising — issued as a one-for-one non-renounceable offer to shareholders at 21c a share — is due to close next Wednesday. Virgin’s major shareholders — Singapore Airlines, Virgin Group and its newest additions HNA and Nanshan Group — have committed to participate in the capital raising.

Virgin is just days away from closing the doors on the $852m raising but Etihad remains the only large shareholder to confirm its participation. Should the Gulf carrier decide to forgo the raising, it would see its shareholding almost halved to 11 per cent.

Mr Borghetti said he still did not know if Etihad would take part in the raising.

“You will have to ask them. They are considering it,” he said.

A spokesman for Etihad said the airline was a long-term strategic investor and was committed to the partnership and to being a shareholder.

“Our comprehensive 10-year commercial agreement is further evidence of our confidence in and support for Virgin Australia, and our commitment to the airline and Australia,” said the spokesman. “We will continue to review our option to take up the pro-rata entitlement, and will announce our decision at the appropriate time.”

The reporter travelled to Los Angeles as a guest of Virgin Australia.