The launch signifies Virgin Australia's re-entry into the long-haul international market, a sector it exited in March 2020 when the pandemic forced borders to close and the airline into voluntary administration. Since its rescue by Bain Capital, Virgin has strategically forged partnerships with major international carriers, including Qatar Airways, Singapore Airlines, United Airlines, Air Canada, and All Nippon Airways, to offer its customers a comprehensive suite of long-haul travel options. Flights from Brisbane and Perth to Doha are slated to follow later this month, with Melbourne services scheduled for December.
The Unexplained Block and its Aftermath
The new Doha route is particularly notable given the backdrop of a controversial decision by the Australian government in July 2023. At that time, Qatar Airways had sought to expand a bilateral air rights agreement, aiming to increase its flight frequencies into Australia's four largest airports. This bid garnered support from various stakeholders, including tourism operators, state governments, and trade associations, who saw it as a means to boost tourism and trade.
However, the expansion was vehemently opposed by Qantas, Virgin Australia's domestic rival, which is currently undertaking a massive $15 billion fleet renewal program. Virgin, in turn, actively lobbied the government on behalf of Qatar, arguing that additional flights would help alleviate the significantly high cost of air travel to Europe, a particularly lucrative market for Qantas.
Ultimately, Qatar's bid was blocked for reasons that were never fully clarified by the Labor government. This decision ignited a considerable political firestorm, raising questions about Prime Minister Anthony Albanese's relationship with former Qantas chief executive Alan Joyce.
A New Chapter Through Strategic Partnership
In the wake of the blocked expansion, Qatar Airways and Virgin Australia forged a new agreement. As part of this deal, the Middle Eastern state-backed carrier acquired a 25% stake in the private equity-owned airline for $825 million. A key component of this partnership involves Qatar wet-leasing its aircraft to Virgin for the resumption of flights to Doha. Under a wet lease arrangement, an airline leases a plane from another carrier, which retains its original livery and is operated by the lessor's crew. These flights are permissible under the existing bilateral agreement, utilizing previously unused Australian flight allocations.
In its appeal for Foreign Investment Review Board approval for the investment, Virgin Australia projected that these new flights would unlock $3 billion in economic value for Australia over the five-year period for which they are approved to operate. However, the precise economic benefit will ultimately hinge on factors such as aircraft occupancy rates and the influx of new tourists to Australia.
Despite the strategic importance of the Qatar partnership for Virgin's international network, Bain Capital is set to sell down another 30% of its holding in Virgin for $685 million through an initial public offering (IPO) on the ASX later this month. Interestingly, the prospectus for this IPO informed potential investors that the Qatar wet lease arrangement would not directly contribute financial benefits to Virgin.