Brazilian IPO the Australia price war and Aeroflot – It’s all go.

Victoria
By Victoria May 29, 2013 09:58

Brazilian IPO the Australia price war and Aeroflot – It’s all go.

Azul, the Brazilian airline founded by JetBlue founder David Neeleman, confirmed yesterday that it had filed with the SEC to raise up to $100m in an initial public offering and list on the NYSE. There is no doubt that the $100 million figure is just a placeholder at this time and sources state the IPO is likely to actually be in the $500m range. Goldman Sachs, Morgan Stanley, Itau BBA, Santander and Banco do Brasil SA are the joint bookrunners on the deal.
Aeroflot has been given the nod from the very top that it should acquire other Russian private carriers in a move that looks, on the face of it at least, to be a wish from the President’s office to boost Aeroflot before the 2016 IPO. It is widely reported that Transaero, UTair, and/or Sibir are targets with the latter seen as the first easy prey. The question is whether any deals be low-cash offers coupled with political pressure or will they be fair prices paid? The world is watching. But this news does mean that the two current bids for Sibir from parent S7 group and another from its subsidiary, Globus could be put into the long grass with the President’s office decreeing that any offer for a 25.5% stake in Sibir is too low and the sale should be handed over to a state company such as Aeroflot or Rostech. Alfa Bank is understood to be broking on behalf of Aeroflot offering Sibir a price of $35 million (1.1 billion roubles).
The owners of S7, the Filyevs, have already stated in the Russian press that the sale is a form of state blackmail and the decision of the Federal Property Agency of moving the sale date from April to May was one that favoured Aeroflt and the Russian state.
The Russian government may sell Aeroflot shares this year as part of a plan to raise 427 billion roubles ($13.5 billion) through state asset sales to help balance the budget and reduce its role in the economy. The government is also selling off VTB and Rosneft shares.
The Russian state is increasing ownership of all aviation assets across the board and plans to build them up fast and sell them off at a good profit for the state but even as it prepares to sell off Aeroflot shares everyone knows who will always call the shots at the airline.
Meanwhile China Southern has released a $720 return economy fare from Australia to China for flights on the route that will from October be served by the A380. The fare, announced yesterday, applies not only to the A380 flights but also to the airline’s A330-200/300 flights out of Melbourne, Brisbane and Perth to Beijing and Shanghai.
In a worrying turn for Qantas and others premium fares have also been slashed, with return business class offered from $2,380 from $3,800 and first class at $3,800 from $6,000.
China Southern is not stopping there, it knows that a barrier for many will be language and as such it is hiring 400 English-speaking cabin crew across its network, including its Australian routes.
The price war on all routes across and out of Australia continues to gather pace and we have to ask – Can the key market players handle it?
Qantas has in the past had some very low fares in the market on the Australia to Shanghai route from as low as $838 economy and $3,838 and the impact from that decision did not do the airline much good at all.
Qantas needs to speed its reform into a low cost carrier especially on domestic routes if it is to maintain margins in the face of tough competition. Qantas management have a good window at this time to sit staff, government and the public down and show clearly that with current levels of competition unless more action is taken the airline will start on a downward spiral. At the same time it can highlight the obvious savings to the public through a deeper cost cutting drive.

Victoria
By Victoria May 29, 2013 09:58
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