Virgin eyes QantasLink’s Queensland contracts

Virgin Australia Holdings (ASX: VAH) has reportedly threatened to pull its 1200 staff out of its Brisbane headquarters.

The company is unhappy with its access to regional airports in Queensland, according to The Courier Mail. It has also been suggested that Virgin will look at speeding up growth in other regions, rather than Brisbane.

Qantas Airways (ASX: QAN) subsidiary, QantasLink has several routes that are either subsidised or regulated by the state government.  Some of those contracts are due for expiry next year, but Virgin said that the Department of Transport had informed them the contracts were going to be rolled over until 2014.

Related: Virgin gets approval for Skywest

Queensland Deputy Premier Jeff Seeney has told ABC Radio that the government would do everything it can to keep Virgin’s Australian headquarters in Brisbane, and it was possible that some of the routes could be opened up for competition.

That will be music to the ears of John Borghetti, Virgin’s chief executive. After spending 36 years working for the Flying Kangaroo, Mr Borghetti took the reins of Virgin in 2008, and has been taking the fight to Qantas ever since.

From targeting business travellers, frequent flyers, corporate customers, to inking a deal with budget airline Tiger Airways, and a takeover of Skywest Airlines (ASX: SXR), Virgin has been trying to take a big chunk of Qantas’ dominant market share. It’s estimated that Qantas has around 65% of the domestic air travel market.

In another blow for Qantas following the company severing its ties with Tourism Australia, Virgin and Tourism Australia have announced a doubling of their marketing partnership, from $6 million to $12 million.

Virgin’s 60% stake in Tiger has yet to be approved by the Australian Consumer and Competition Commission (ACCC), but will essentially mean that Australia returns to an airline duopoly and should allow both Virgin and Qantas to return to more sustainable capacity and pricing. In other words, prices are likely to go up, and the number of seats available to go down, as the need for the airlines to heavily discount tickets abates.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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