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Virgin eyes Asian budget airline

Richard Branson, who turned a A$10 million (US$7.5 million) investment in Australia's Virgin Blue into a discount airline valued at A$2.8 billion, says he's eyeing other Asian nations to replicate his carrier's success.

"We are in discussions with one or two people about either working with them on a low-cost airline they have already set up or setting up a low-cost airline," Branson said in a televised interview with Bloomberg News in Sydney. He predicted a decision in three to six months.

Branson is entering a market where discount carriers such as Malaysia's AirAsia Sdn are starting to flourish as governments relax traffic agreements to revive tourism after the outbreak of SARS. He has also short-listed five US cities as the base for a discount carrier called Virgin USA, prompting California governor Arnold Schwarzenegger to lobby on behalf of Los Angeles.

The focus on new markets comes after Virgin Express in Europe cut its fleet to 13 aircraft from 23. Lowering fares amid rising competition caused profit at the airline to plunge 62 percent to 1.7 million euros (US$2.1 million) in the third quarter.

"I would be hesitant to throw my hands up in the air just because Richard Branson said he might do something -- he has had mixed success," said Mark Webb, an analyst at HSBC Securities in Hong Kong. "Any country with a large domestic market and leisure market provides prospects. There are already low-cost carriers in Thailand, Indonesia and the Philippines."

Since starting services three years ago with two planes, Virgin grabbed 30 percent of the Australian domestic market and will challenge Qantas Airways Ltd. on international flights next month. Branson's company has earned about A$750 million from its investment in Virgin Blue Holdings Ltd, including A$250 million from the initial share sale Monday. Its shares fell 0.4 percent to A$2.50 in Sydney.

Potential partners in Asia may include Tony Fernandes, who plans to sell a third of AirAsia next year to raise as much as US$300 million.

The Kuala Lumpur-based discount carrier plans to more than double its fleet of nine Boeing Co 737 aircraft to 20 by June next year.

Singapore Airlines Ltd yesterday announced plans to set up Tiger Airways, a low-cost airline, with two partners including Irelandia Investments, which is owned by the Ryan family, a stakeholder in Dublin-based discount airline Ryanair Holdings Plc. Former Ryanair ground operations director Charlie Clifton will help it set up the budget unit.

Thai Airways International Pcl is also considering a discount unit and has approached Virgin Blue for advice.

Orient Thai Airlines Co, a privately owned carrier, this month announced a new unit to offer both domestic flights and routes linking Thailand and Malaysia. Other low-cost carriers include Manila-based Cebu Pacific Air Inc, a unit of JG Summit Holdings Inc, and Lion Air in Indonesia.

Branson is unlikely to select Hong Kong or Singapore as a base because of their high costs and small domestic markets, Webb said. Entering China may also be hard because of regulations governing foreign investment.
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