Virgin Australia Finds New International Partner in Alitalia

11th Apr 2016

Only a month after its frequent flyer partnership with one Australian airline ended, Italian national carrier Alitalia has found another partner there ? Virgin Australia. The two airlines have penned new codesharing deal, which will at first cover Alitalia's flights from Abu Dhabi to Rome and Milan, while a reciprocal flyer arrangement should soon also follow. Virgin also offers codeshares for these destinations through Etihad and Singapore Airlines.

Alitalia is 49 per cent owned by one of Virgin Australia major shareholders, Etihad. Etihad bought the shares at the Italian airline in 2014 for $2.66 billion.

According to CAPA, Etihad could be withdrawing from future expansion plans in the Middle East, at least compared to its rivals Qatar Airways and Emirates. The airline is expected to increase its capacity this year by 9 per cent, while Qatar and Emirates will do so by 23 and 10 per cent respectively, with the addition that Emirates has a much larger base than Etihad.

Center for Asia Pacific Aviation said:

"Etihad wants to bed down growth, replace partner aircraft it has been using and improve equity partner financials amidst the Abu Dhabi government reducing spending, as observed elsewhere in the Middle East following the sharp decrease in oil price."

Air New Zealand, Virgin Australia's largest shareholder, with 26 per cent stake, recently decided to sell its shares in the Australian airline, either in full or partially. This opened a can of opportunities for the three other major shareholders, especially Etihad, which owns 25.1 and Singapore Airlines, with its 23.11 per cent share to buy a bigger part in the carrier.

However, according to CAPA, it is not likely that Etihad will be going this route and buying Air NZ's share in Virgin:

"Australia is a larger market for Singapore Airlines than Etihad, and Singapore Airlines has ample cash reserves. As seen with Singapore Airlines' purchase of TigerAir well above its market value, the group is not opposed to paying a premium to secure its strategic intent."

Of course, if Singapore Airlines gains majority control by buying Air New Zealand's stake in Virgin Australia, Etihad is likely to sell its own stake to it or some other interested company.