ANALYSIS: The tie-up lets Virgin take off into long-haul international flying and helps the Doha-based airline land in the Australian market.
Qatar Airways’ deal to take a 25 per cent minority stake in Virgin Australia is far ranging and guarantees the growth of Australia’s second largest airline.
In one swift move, Virgin Australia has been able to launch into long-haul international flying while Qatar Airways gets greater access to the Australian market denied it by last year’s perplexing federal government decision to refuse it more landing rights.
Qantas lobbied heavily to stop Qatar’s expansion but now faces a far more robust Virgin Australia with the Doha-based airline’s backing, which was announced on October 1.
The deal is subject to approval by the Foreign Investment Review Board and Treasurer Jim Chalmers.
It will also underpin the plans for an IPO sometime next year and represents a significant vote of confidence in Virgin Australia and Australian aviation.
The most immediate impact will be the ‘wet’ leasing of Qatar Airways’ wide-body aircraft and cabin crew to operate flights from Perth, Sydney, Melbourne and Brisbane to Doha to connect with Qatar Airways’ vast international networks.
These flights will open more than 100 new connecting itineraries across Europe, the Middle East and Africa for Australian travellers.
Virgin Australia would be allowed to operate up to 28 flights a week to Doha under the current bi-lateral deal, which is seven more than Qatar Airways was denied last year.
This will also accelerate Virgin Australia’s plans for a return to flights to the US, which were ditched when the airline went into bankruptcy when COVID hit.
It is not clear which wide-body aircraft Qatar Airways will lease Virgin Australia but they are expected to be either Boeing 787s or Airbus A350s.
The equity investment by Qatar Airways Group will unlock new areas of cooperation, subject to Australian Competition and Consumer Commission authorisation, with Virgin Australia, all of which will help to drive additional consumer and economic benefits.
Virgin Australia said the proposed lease services will begin in mid-2025, enabling the airline to assess the longer-term merits and viability of wide-body aircraft.
It said the deepened partnership had the potential to underpin significant jobs and economic growth, not just for Virgin Australia but across both the broader aviation and tourism sectors in Australia.
Virgin Australia Group chief executive Jayne Hrdlicka told Business News “this partnership brings the missing piece to Virgin Australia’s longer-term strategy”.
“Importantly, it will further strengthen Virgin Australia’s ability to compete over the long term, which will inevitably translate into more choice and even better value airfares for consumers as well as additional Australian aviation jobs,” Ms Hrdlicka said.
“Qatar Airways has been a valued code-share partner of Virgin Australia since 2022.
“This investment by the world’s best airline will deepen an already strong partnership by bringing critical scale and the best industry expertise to support our long-term competitiveness and growth.
“This proposed investment is subject to regulatory approval.
“We do not take this for granted and have made submissions outlining the benefits of the transaction for Australian aviation, Australian travellers and the Australian economy.”
Speaking to the economic benefit, Ms Hrdlicka said the proposed long-haul services between Australia and Doha were estimated to generate an economic benefit of $3 billion to the Australian economy through incremental visitor flows over the next five years.
She noted additional benefits would flow from increased freight capacity, supporting Australia’s high-value exports to markets such as the Middle East and Europe.
“I am delighted that our closer relationship allows us to put our toe in the water regarding long-haul international, as well as the ability to deepen other areas of existing cooperation, including between our respective loyalty programs and code-sharing arrangements,” she said.
Ms Hrdlicka is particularly excited by the potential to expand the two airlines’ relationship into new areas such as sustainability and development of the western Sydney aviation ecosystem, including broader jobs and training opportunities.
“Sustainable Aviation Fuel will play a critical role in aviation’s long-term decarbonisation effort,” she said.
Virgin
“Australia has been an active participant in the federal government’s Jet Zero Council, and we expect our partnership with Qatar Airways to support SAF opportunities in a manner consistent with the federal government’s Future Made in Australia agenda.
“I am super proud of the entire team at Virgin Australia.
“Together they have done a wonderful job getting Virgin Australia back into a healthy, long-term competitive position that has attracted the world’s best airline as a prospective investor.
“Every member of our team has contributed to this terrific outcome.”
Qatar Airways Group chief executive Badr Mohammed Al Meer said the airline was “really pleased to be announcing our proposed strategic investment in Virgin Australia”.
“The alignment of our two airlines is significant, the relationships are deep, and we could not be more proud to bring even more great value and choice to all Australians,” he said.
“The investment further demonstrates our strategic alignment with Virgin Australia and our collective ambition to deliver the best possible service and value to Australian passengers.
“Not only that, we believe competition in aviation is a good thing and it helps raise the bar, ultimately benefiting customers.”
The Virgin tie-up with Qatar Airways is not expected to impact on Qantas at least in the short to medium-term as the national flag carrier is committed to a non-stop strategy offering business, premium economy and economy products on such routes as Perth to London, Paris and Rome.
To be delivered in 2026, a fleet of A350-1000s will go a step further adding first-class and non-stop flights from Australia’s east coast to London and New York.
It will be interesting to see if Virgin Australia takes the Qatar Airways aircraft as is or it opts to add premium economy to counter Qantas by taking out some economy seats.
The current shortage of aircraft parts, particularly seats, across the airline industry will probably preclude such a move.
However, one solution would be to simply take out some economy seat rows and then only sell the window and aisle seats, leaving the middle seats empty.
Thus, on a typical 787 with a 3-3-3 configuration the airline would only sell 2-2-2.
Virgin Australia does offer an economy plus on domestic aircraft that gives greater leg room.
Qatar Airways itself needs to embrace premium economy in full or develop a hybrid model.
Lufthansa now claims premium economy is the airline’s most profitable section, with economy passengers willing to pay extra for more space.
Emirates has also found the class extremely popular and has been surprised by the demand.
Airlines such as Air New Zealand, Cathay Pacific Airways and Singapore Airlines also offer premium economy.
But it is in business class space that Qatar Airways may deliver Virgin Australia an ace, with its multi-award-winning Qsuite, which is fitted to many of its A350s and now Boeing 787s.
Neither airline is giving anything away, but it is expected details will be released before the end of the year.