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AirAsia reveals Virgin plan

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Feb 21, 2008

ASIA'S largest budget airline, AirAsia, has signalled its interest in launching an "ultra low-cost" domestic carrier in partnership with Virgin Blue, fuelling expectations Australia could soon see the mother of all air fare wars.

The Malaysian airline has confirmed it could join Singapore's Tiger Airways and Indonesia's Lion Air, and draft plans to grab a slice of the increasingly crowded Australian domestic market.

"We are definitely keen but a lot of that hinges on what happens with Toll [Holdings] and who is going to take control of Virgin Blue," said the head of the airline's AirAsiaX long-haul arm, Azran Osman-Rani.

AirAsia has indicated it will only enter into a deal with Virgin Blue if Toll sells down its 62.7 per cent stake in the carrier and Sir Richard Branson wrestles back management control of the airline he helped establish in 2000.

"At this stage we're not actively pursuing anything. We will observe what happens to the Toll stake," said Mr Azran, who stressed AirAsia had no interest in buying part of Virgin Blue.

Sir Richard already owns a strategic stake in AirAsiaX and has a close association with the airline's founder, Tony Fernandes, an ex-Virgin executive.

The Virgin founder, who owns 25.5 per cent of Virgin Blue, is yet to signal whether he might increase his share in the carrier.

With Toll keen to dispose of its stake via a reprivatisation of the airline, this could become clearer when he visits Australia with Mr Fernandes next month.

Despite Wednesday's disappointing profit from Virgin Blue, Toll surprised the market yesterday with a 10.3 per cent lift in interim profits to $237 million. Toll shares rose 76c to $10.15, after the company said it expected buoyant trading conditions to continue across its "core transport and logistics" operations for the rest of the fiscal year.

On Wednesday, Virgin Blue boss Brett Godfrey said the ultra-cheap spin-off could either be launched out of his airline's New Zealand-centric Pacific Blue subsidiary or in partnership with another low-cost airline.

It is unclear if AirAsia, which has sponsorship deals with the English football club Manchester United and the Williams formula one motor-racing team, might want any venture to be in its distinctive branding or in Virgin's.

While Virgin Blue attempts to take its operations upmarket in an bid to lure corporate passengers from Qantas, the "ultra" budget carrier will try to undercut Qantas's budget Jetstar arm.

It is likely the airline will squeeze at least another row of seats on its jets. AirAsiaX already flies between Kuala Lumpur and the Gold Coast. It is seeking permission from the Federal Government to increase flights to Australia.

While delaying plans to fly to Newcastle until next year, it is believed the airline could announce flights to Melbourne next month.

AirAsia may not have to wait long for Toll to dispose of its stake in Virgin Blue, whose shares have slumped to $1.24.

Toll said it was likely to "reduce its investment in the company". A board assessment would be completed soon.

business.smh.com.au

AirAsia reveals Virgin plan
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