Dollars

TRANSPORT


Juneyao Air's market capitalisation is now greater than that of Air Canada and Air France-KLM.image www.acbocallcentre.com

Juneyao Air’s market capitalisation is now greater than that of Air Canada and Air France-KLM. Photo: Bloomberg

One of the world’s youngest billionaires has emerged in China after his budget airline tripled in value in less than three weeks.

Wang Han has a net worth of $US1.2 billion ($1.5 billion), according to the Bloomberg Billionaires Index. The 27-year-old inherited 27 per cent of Shanghai-based Juneyao Airlines Co from his father, who died in 2004.

The airline sold shares in an initial public offering on May 27 and has risen by the exchange-imposed limit of 10 per cent each day since. China’s benchmark Shanghai Composite Index has advanced 58 per cent this year, helping to create more than 75 billionaires.

Wang’s uncle, Wang Junjin, chairman of Juneyao, owns 26 per cent of the carrier. He also controls 14 per cent of department store operator Wuxi Commercial Mansion Grand Orient Co, giving him a $US1.1 billion fortune. Juneyao’s rise is set to produce a third billionaire, Wang Junhao, another uncle, as the airline added 10 per cent as of 10.09am in Shanghai trading.
Advertisement

Aviation billionaires are rare in China because the low returns make it difficult to make money in the industry, according to Li Xiaolu, an industrial analyst at Capital Securities Corp in Shanghai.

“Juneyao is a new stock which investors favor,” Li said. “It may still jump further.”

The company’s IPO came after low-cost carrier Spring Airlines Co surged more than sevenfold since its January listing. Spring’s Chairman Wang Zhenghua became a billionaire about two weeks after its trading debut.

Juneyao Air jumped by the 10 per cent cap to a record 41.76 yuan at the Shanghai close on Wednesday. That gave the carrier a market capitalisation of 23.7 billion yuan ($4.9 billion), making it more valuable than Air Canada and Air France-KLM.

Wang Xi, a Juneyao Air investor relations official, declined to comment.

Bloomberg

ooo

Henry Sapiecha

Is Branson abandoning Virgin Australia Airlines to buy Sky west-Selling shares.

Richard Branson jetted into Perth this week

To wave his publicity wand over Virgin Australia’s latest announcement. Between poking his head out of the cockpit window, standing next to glamorous flight attendants in Virgin red uniforms and waving flags he presided over the launching of Virgin Australia’s new acquisition, SkyWest.

But this time around the presence of Branson seemed a little strange. Less than two weeks ago he sold down his shareholding in Virgin Australia from 23 per cent to 13 per cent. And after speaking with him yesterday one thing clear, between the lines, was that he is not a long-term holder of his remaining stake. This poses the important question of who he will sell it to and how this can be done.

The Virgin Australia share register is tightly held between its three alliance airline partners, Singapore Airlines (which, thanks to Branson, now has 19.9 per cent), Air New Zealand with roughly the same, and Etihad with 8.5 per cent. Etihad had been in talks with Branson for more than a year to buy part of his shareholding but it appears to have been a case of tyre kicking.

So it is not surprising that Branson was open to the overtures from Singapore Airlines. Branson said: ”It’s always nice to have big airlines lining up for your shares.”

It’s an open secret in the airline industry that Etihad boss James Hogan was less than impressed that Branson sold 10 per cent of Virgin to Singapore.

Branson’s decision will be pivotal to how the share structure plays out and in this sense he becomes the kingmaker.

He is already working on how to spend the proceeds. One plan under investigation is a number of upmarket (and cool) boutique hotels in Australia. But he confesses it’s early days.

If Branson sells the remainder to any of these three players they would need to make a takeover bid and get Foreign Investment Review Board approval.

And even if the other airline shareholders did not accept the offer, the bidder could capture the 36 per cent held by retail and institutional shareholders. (And the fact remains that Etihad and Singapore operate in competition out of Australia beyond their hubs.)

Another possibility is a private equity play that takes out the minorities and negotiates the purchase of the majority of Virgin’s frequent-flyer program. This asset is becoming increasingly valuable, thanks to the involvement of Virgin Australia’s various alliance partners and its capture of a larger portion of the business-traveller market.

The valuation differs depending on which analyst one speaks to. Some analysts have called it as low as $250 million but at the upper end it has been valued at closer to $1.5 billion on a two-year prospective basis.

Unlike airlines whose cyclical earnings can be volatile, frequent-flyer programs churn out a more solid profit stream. And the value of this business tends to improve over time as membership builds.

At one point in Qantas’ recent history its frequent-flyer program was its most profitable division.

Virgin Australia boss John Borghetti will be acutely aware that the ownership tectonic plates are unstable. Until something happens he has to manage these shareholders under the Virgin alliance umbrella. To have any of the three on the board would result in howls of protest from the others, who would want equal treatment.

AAA

But Virgin’s purchase of SkyWest and more recently the ailing no-frills domestic minnow Tiger suggests that he is not waiting for things to happen.

While SkyWest is viewed as a West Australian regional carrier, Borghetti has plans to expand its routes. It already has one-third of its business in Queensland and operates some services in NSW. The fly-in-fly-out mining industry part of the market is worth about half a billion dollars a year and Virgin wants some of this action.

Australian Competition and Consumer Commission documents, part of its dossier on the aviation industry this year, suggested Qantas’ hard and fast line in the sand to retain 65 per cent of the domestic market has already slipped a little.

From an operational perspective this is probably not particularly significant. Indeed, investors are more likely to be relieved that Qantas would prefer to manage yield rather than adhere too closely to self-imposed metrics.

There are plenty of other challenges. Both Virgin and Qantas are just coming out of a savage capacity war that has taken its toll on domestic earnings.

There is an expectation that this pressure is already easing but Borghetti concedes that only in the past couple of weeks the aviation market has become a little softer.

So even if the two airlines have started a ceasefire they will still need to contend with the broader economic conditions.

They are not alone. There have been several economic indicators over the past couple of months suggesting any tentative improvements in economic data are now stalling and business investment is about to hit a wall.

It will be a great relief to many that the Reserve Bank of Australia on Tuesday reduced the cash rate by 25 basis points.

Henry Sapiecha

Is Branson abandoning Virgin Australia Airlines to buy Sky west-Selling shares.

Richard Branson jetted into Perth this week

To wave his publicity wand over Virgin Australia’s latest announcement. Between poking his head out of the cockpit window, standing next to glamorous flight attendants in Virgin red uniforms and waving flags he presided over the launching of Virgin Australia’s new acquisition, SkyWest.

But this time around the presence of Branson seemed a little strange. Less than two weeks ago he sold down his shareholding in Virgin Australia from 23 per cent to 13 per cent. And after speaking with him yesterday one thing clear, between the lines, was that he is not a long-term holder of his remaining stake. This poses the important question of who he will sell it to and how this can be done.

The Virgin Australia share register is tightly held between its three alliance airline partners, Singapore Airlines (which, thanks to Branson, now has 19.9 per cent), Air New Zealand with roughly the same, and Etihad with 8.5 per cent. Etihad had been in talks with Branson for more than a year to buy part of his shareholding but it appears to have been a case of tyre kicking.

So it is not surprising that Branson was open to the overtures from Singapore Airlines. Branson said: ”It’s always nice to have big airlines lining up for your shares.”

It’s an open secret in the airline industry that Etihad boss James Hogan was less than impressed that Branson sold 10 per cent of Virgin to Singapore.

Branson’s decision will be pivotal to how the share structure plays out and in this sense he becomes the kingmaker.

He is already working on how to spend the proceeds. One plan under investigation is a number of upmarket (and cool) boutique hotels in Australia. But he confesses it’s early days.

If Branson sells the remainder to any of these three players they would need to make a takeover bid and get Foreign Investment Review Board approval.

And even if the other airline shareholders did not accept the offer, the bidder could capture the 36 per cent held by retail and institutional shareholders. (And the fact remains that Etihad and Singapore operate in competition out of Australia beyond their hubs.)

Another possibility is a private equity play that takes out the minorities and negotiates the purchase of the majority of Virgin’s frequent-flyer program. This asset is becoming increasingly valuable, thanks to the involvement of Virgin Australia’s various alliance partners and its capture of a larger portion of the business-traveller market.

The valuation differs depending on which analyst one speaks to. Some analysts have called it as low as $250 million but at the upper end it has been valued at closer to $1.5 billion on a two-year prospective basis.

Unlike airlines whose cyclical earnings can be volatile, frequent-flyer programs churn out a more solid profit stream. And the value of this business tends to improve over time as membership builds.

At one point in Qantas’ recent history its frequent-flyer program was its most profitable division.

Virgin Australia boss John Borghetti will be acutely aware that the ownership tectonic plates are unstable. Until something happens he has to manage these shareholders under the Virgin alliance umbrella. To have any of the three on the board would result in howls of protest from the others, who would want equal treatment.

AAA

But Virgin’s purchase of SkyWest and more recently the ailing no-frills domestic minnow Tiger suggests that he is not waiting for things to happen.

While SkyWest is viewed as a West Australian regional carrier, Borghetti has plans to expand its routes. It already has one-third of its business in Queensland and operates some services in NSW. The fly-in-fly-out mining industry part of the market is worth about half a billion dollars a year and Virgin wants some of this action.

Australian Competition and Consumer Commission documents, part of its dossier on the aviation industry this year, suggested Qantas’ hard and fast line in the sand to retain 65 per cent of the domestic market has already slipped a little.

From an operational perspective this is probably not particularly significant. Indeed, investors are more likely to be relieved that Qantas would prefer to manage yield rather than adhere too closely to self-imposed metrics.

There are plenty of other challenges. Both Virgin and Qantas are just coming out of a savage capacity war that has taken its toll on domestic earnings.

There is an expectation that this pressure is already easing but Borghetti concedes that only in the past couple of weeks the aviation market has become a little softer.

So even if the two airlines have started a ceasefire they will still need to contend with the broader economic conditions.

They are not alone. There have been several economic indicators over the past couple of months suggesting any tentative improvements in economic data are now stalling and business investment is about to hit a wall.

It will be a great relief to many that the Reserve Bank of Australia on Tuesday reduced the cash rate by 25 basis points.

Henry Sapiecha

OBESE PEOPLE TO PAY MORE FOR SEATS ON AIRLINE

Samoa Air has become the world’s first airline to implement “pay as you weigh” flights, meaning overweight passengers pay more for their seats.

“This is the fairest way of travelling,” chief executive of Samoa Air, Chris Langton, told ABC Radio. “There are no extra fees in terms of excess baggage or anything – it is just a kilo is a kilo is a kilo.”


Like many Pacific island nations, Samoa has a serious obesity problem and is often included in the top 10 countries for obesity levels. As such, Mr Langton believes his airline’s new payment policy will also help promote health and obesity awareness.

“When you get into the Pacific, standard weight is substantially higher [than south-east Asia],” he said. “That’s a health issue in some areas. [This payment system] has raised the awareness of weight.”

Under the new system, Samoa Air passengers must type in their weight and the weight of their baggage into the online booking section of the airline’s website. The rates vary depending on the distance flown: from $1 per kilogram on the airline’s shortest domestic route to about $4.16 per kilogram for travel between Samoa and American Samoa. Passengers are then weighed again on scales at the airport, to check that they weren’t fibbing online.

Samoa Air operates BN2A Islander and Cessna 172 aircraft.

Mr Langton said he believed it to be a system of the future, and added that “the standard width and pitch of seats are changing as people are getting a bit bigger, wider and taller than they were 40 to 50 years ago”.

He also pointed out that families travelling with small children could end up paying far less with the pay-by-weight scheme.

“A family of maybe two adults and a couple of mid-sized kids … can travel at considerably less than what they were being charged before,” he said.

Public relations and marketing representative for Samoa Tourism, Peter Sereno, said he believed that the policy would also help with safety standards.


“When you’re only fitting eight to 12 people in these aircraft and you’ve got some bigger Samoans getting on, you do need to weigh them and distribute that weight evenly throughout the aircraft, to make sure everyone’s safe,” he said. “At the end of the day, I don’t care who they’re weighing or how they’re weighing them as long as it’s safe.”

Norwegian economist Bharat P. Bhatta proposed in a recent journal article that by implementing pay-per-kilo policies, carriers could also recoup the cost of the extra fuel required to carry larger people.

Some airlines in the United States already force obese passengers who cannot fit in a single seat to pay for two seats, but this is the first time a per-kilo rate has been used by an airline.


Sourced & published by Henry Sapiecha