Open note to SQ: Sell the Virgin stake NOW while you can!
Virgin Atlantic, 49% owned by Singapore Airlines, reported rather lackluster earnings the other day dragged down by Virgin Nigeria's performance. Higher fuel costs (particularly now and on the horizon), Virgin Nigeria operating in a tough environment, and open skies coming into force in early 2008 across the Atlantic, and the conditions seem ripe to me for Singapore Airlines to do what it should have done a while ago: sell the 49% stake back to Sir Richard and co.
Here are some of the highlights of Virgin's performance for the quarter:
-Profit down from £60.3 mln to £6.6 mln
-Revenue was up 16% to £2.2 bln
-Passenger numbers up from 4.8 mln to 5.3 mln
Virgin Nigeria was one of the main reasons earnings got dragged lower. When you think about it, that airline already operates in an extremely tough market to begin with. Finding success for them is something that could take a while, that is, if success ever comes their way.
Taking into consideration that open skies across the Atlantic will soon come into force and suddenly the market operating environment for Virgin Atlantic becomes a lot tougher on their bread and butter routes. A number of airlines that had previously not held route authority to Heathrow airport have already stated their intention to fly into what has been one of Virgin Atlantic's traditional hubs (over London's Gatwick airport). Granted the transatlantic market between London and the United States is the largest of them all, competition however will become much fiercer and cut throat as airlines work to undercut each-others market share on routes.
Energy costs continue to rise, particularly for jet fuel. Singapore Airlines hiked its fuel surcharge again recently, and crude prices also continue to trade in the $70 range.
With all these conditions, the time is now for SQ to sell their stake in my opinion, before the earnings picture gets even uglier than this.
Curtis Bergh
Here are some of the highlights of Virgin's performance for the quarter:
-Profit down from £60.3 mln to £6.6 mln
-Revenue was up 16% to £2.2 bln
-Passenger numbers up from 4.8 mln to 5.3 mln
Virgin Nigeria was one of the main reasons earnings got dragged lower. When you think about it, that airline already operates in an extremely tough market to begin with. Finding success for them is something that could take a while, that is, if success ever comes their way.
Taking into consideration that open skies across the Atlantic will soon come into force and suddenly the market operating environment for Virgin Atlantic becomes a lot tougher on their bread and butter routes. A number of airlines that had previously not held route authority to Heathrow airport have already stated their intention to fly into what has been one of Virgin Atlantic's traditional hubs (over London's Gatwick airport). Granted the transatlantic market between London and the United States is the largest of them all, competition however will become much fiercer and cut throat as airlines work to undercut each-others market share on routes.
Energy costs continue to rise, particularly for jet fuel. Singapore Airlines hiked its fuel surcharge again recently, and crude prices also continue to trade in the $70 range.
With all these conditions, the time is now for SQ to sell their stake in my opinion, before the earnings picture gets even uglier than this.
Curtis Bergh
Labels: Earnings, Singapore Airlines, Virgin Atlantic
Open Note to SIA: Sell the Virgin Stake
SIA's looking to sell it, Sir Branson wants it back: the 49% stake that Singapore Airlines has in Virgin Atlantic - that has long been a dog in SIA's earnings reports - may finally get a one way ticket back to the U.K.
I say sell it. give Sir Richard Branson back what he seems to want back. His exact words on the subject: "We will be happy to have a look at their stake should Singapore want to sell it." That to me is business lingo for 'I really want it!' Anytime an executive utters words like that means that they will seriously consider an offer if it is put before them, and, the stars are aligned enough in this case where I think you would see Virgin buy back the stake.
For Singapore Airlines, it is a good move i think because Virgin Atlantic has long been the laggard on the earnings announcements for SIA as of lately, and SIA would make a substantial 'one-off' gain from the sale (most likely more than what they originally purchased the stake for).
SIA's keen interest in China Eastern may signal a shift that they are looking for stakes in airlines in growing markets (such as China), rather than more established markets such as transatlantic flights from Europe to the U.S. where the bulk of Virgin's destinations lie. The stake in Virgin did open up a lot of doors for SIA back when it happened. SIA gained access to key routes from London to east coast destinations in the U.S. that Virgin flew too.
But now, with the recent loosening of the regulation between the U.S. and Europe, competition will increase on routes, tightening margins for airlines. Risky, if you ask me.
All in all, SIA should do it, from a business standpoint it makes sense, and from a strategic standpoint, the Virgin stake just simply isn't working the magic for them anymore like it once used to.
Curtis Bergh
ArchivesI say sell it. give Sir Richard Branson back what he seems to want back. His exact words on the subject: "We will be happy to have a look at their stake should Singapore want to sell it." That to me is business lingo for 'I really want it!' Anytime an executive utters words like that means that they will seriously consider an offer if it is put before them, and, the stars are aligned enough in this case where I think you would see Virgin buy back the stake.
For Singapore Airlines, it is a good move i think because Virgin Atlantic has long been the laggard on the earnings announcements for SIA as of lately, and SIA would make a substantial 'one-off' gain from the sale (most likely more than what they originally purchased the stake for).
SIA's keen interest in China Eastern may signal a shift that they are looking for stakes in airlines in growing markets (such as China), rather than more established markets such as transatlantic flights from Europe to the U.S. where the bulk of Virgin's destinations lie. The stake in Virgin did open up a lot of doors for SIA back when it happened. SIA gained access to key routes from London to east coast destinations in the U.S. that Virgin flew too.
But now, with the recent loosening of the regulation between the U.S. and Europe, competition will increase on routes, tightening margins for airlines. Risky, if you ask me.
All in all, SIA should do it, from a business standpoint it makes sense, and from a strategic standpoint, the Virgin stake just simply isn't working the magic for them anymore like it once used to.
Curtis Bergh
Labels: Richard Branson, Singapore Airlines, Virgin Atlantic
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