Hainan Buys A Stake In Virgin Australia, Strategic Partnership To Follow

Filed Under: Hainan, Virgin Australia

Despite their snazzy new business class product, Virgin Australia isn’t an airline which has been performing especially well the past several years. They finally turned a modest profit last year, which represents quite a change of course from previous years.

Virgin Australia’s new 777 business class

What also makes Virgin Australia unique is the number of airlines which are major shareholders of the company — these include Air New Zealand, Etihad Airways, and Singapore Airlines, which combined hold more than half the shares of the company.

Well, it looks like Virgin Australia can soon add another airline to the list of their shareholders, or at least the parent company of another airline.

HNA Group, the parent company of Hainan Airlines, will buy 13% percent of Virgin Australia for 159 million AUD, with hopes of raising their stake to 20% over time. The 13% purchase reflects newly issued shares, meaning the percentage stakes of existing shareholders will be diluted.

Hainan-Airlines-LAX-Lounge - 30
Hainan Airlines 787

It looks like this isn’t just a straight investment, but part of a strategic partnership, which could potentially make a lot of sense. Via Bloomberg:

In an alliance with HNA, Virgin Australia plans to start direct flights to and from China next year and fly some of those visitors on its network at home. Qantas Airways Ltd. currently dominates that market. Last year, more than 1 million Chinese travelers visited Australia and by 2020, the number will climb to 1.5 million, Virgin said.

“We carry almost no traffic from China on our domestic network,” Chief Executive Officer John Borghetti said on a call with reporters Tuesday. “This will change the dynamics. The way that China is growing, direct services in and out of China are very important.”

There does indeed seem to be quite some opportunity here to cooperate, given that Virgin Australia doesn’t fly to China, while Hainan doesn’t fly to Australia. Instead the market is dominated by Qantas, and is served by some other Chinese carriers.

Qantas presently dominates the Australia to China market

With this partnership they have a chance of introducing flights between China and Australia, and actually having a fighting chance at making them successful, thanks to the potential feed on both ends.

Still, you can’t help but wonder how Virgin Australia’s other investors are feeling about this (not that it really matters).

What do you make of Hainan buying a stake in Virgin Australia?

  1. Didn’t NZ want to unload their stake at some point? Perhaps Hainan would purchase that?

  2. Qantas doesn’t really ‘dominate’ the Australia to China market. They only have one flight per day. Chinese Carriers like CZ, MU and CA dominate it

  3. Lucky, although not shown in their route map, Hainan Airlines do have some seasonal service (tri-weekly, in winter) from Xi’an to Sydney, and is about to start more seasonal services this winter (both tri-weekly I believe) from Xi’an to Melbourne and Changsha to Sydney. Also, if I jogged my memory correctly, Hainan Airlines has operated flights from Shenzhen to Sydney a few years ago, but decided to cut it after all.

  4. I always thought that Delta held a stake, but I guess they are just partners. It seems like Delta is by far their strongest partner.

  5. It couldn’t be worse than having Air New Zealand’s pathetic attempts to get a foothold in the Australian market. Disastrous investment in Ansett Australia, sending a 70 year old airline to the wall and the consequent impact on employees and consumers. Then incessant interfering and second guessing Virgin. Let’s hope NZ sticks to its own patch and once and for stays away. Clueless and hopeless: to put it in the Australian vernacular they couldn’t manage a country dunny. Qantas must have been laughing all the way to the bank.

  6. @Henry: correct. Hard to see Virgin starting piles of new services to China anytime soon either. Qantas would dominate the market for Australian domestic connections for flights to/from China though. Looks like a good way for Virgin to both get some capital and a share of what should be a growing market. Main threat to it seems to be Chinese carriers flying direct to all major Australian cities on multiple flights a day frequency a la SQ, CX et al.

  7. From an Aussie point of view, this is fantastic news. I’m not sure how Singapore Airlines feels about this, having their Chinese traffic now direct on Virgin Australia, Hainan & Hong Kong Airlines into Australia. Already only one day old & it’s reported Virgin Australia has applied to the International Air Services Commission seeking traffic rights to operate their own daily services from Sydney to both Hong Kong & Beijing from 1st June 2017, operating A330-200 aircraft & code-sharing with HU & HX . Etihad has welcomed the partnership. With Australia been the number one destination for the Chinese, it just makes sense.
    The biggest loser in all of this is Air New Zealand. They would of got the biggest shock of all yesterday learning of the news. Here they are trying to sell their shares & this happens right under their feet. The pie on the face is very much on Air New Zealand & their board.

  8. Hopefully at some point this will mean being able to use AS miles on Hainan to go from US to Oz… via China

  9. @Ben QF might if you include Hong Kong. But even then I think CX have more flights from Australia thank QF.

  10. Doesn’t Delta own some too? It’s interesting that none of Sir Richard Branson’s namesake airlines–Virgin America, Virgin Atlantic, Virgin Australia–are hugely profitable. Virgin Atlantic seems to have become a client airline of Delta. Virgin Atlantic was bought by Alaska.

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