It is no surprise to see James Hogan, the Australian boss of one of the world's biggest airlines, departing Etihad following months of speculation he was headed for the door.
The Gulf-based carrier had been preparing for a management change since it's group restructure last year. But, while the equity partnership model Hogan pioneered ran into some bumps last year following losses from investments in Air Berlin and Alitalia, it is worth remembering Hogan has overseen the Middle Eastern carrier's spectacular growth in the last decade.
When Hogan joined Etihad it was a 22-plane regional carrier compared to the 120 aircraft it operates now, along with seven airline partnerships. Like neighbour Dubai-based Emirates, Etihad has one of the world's biggest airline networks thanks to the backing of the oil-rich Gulf and some clever investments in product and a network of global airline alliances. Another Australian, finance chief James Rigney, who has been there since the beginning, is going with him.
The question for Australian investors is: Will Hogan's departure affect Etihad's investment in Virgin Australia? Hogan's Australian roots means he has long had ties here, and is a regular visitor to Sydney and Melbourne. He is ambitious, and was at one stage rumoured to be keen on running Qantas. Etihad says Hogan will join an "investment company" along with Rigney.
Etihad says it is committed to its 21.8 per cent stake in Virgin. Whether that changes under new management remains to be seen, although the Australian investment is relatively small compared to its interests in Europe and elsewhere so there would not be any immediate pressure to sell.
There is growing speculation Virgin will be privatised this year, given its tiny free-float and the ability of major shareholders like China's HNA and Nanshan to increase their shareholding through creep provisions over the next three months.
Badgerys blues for Sydney Airport
The resumption of direct Qantas flights between Beijing and Sydney this week was a reminder of growing demand for air travel as airlines piggyback off Asia's rising middle classes.
That growth has helped fuel record passenger numbers through Sydney Airport, which has one of the most stable and predictable earnings streams of any ASX 200 company.
But a Standard & Poor's report examining the economic case for Sydney Airport to take up an option to develop a second airport in the city's west is a reminder that the company's monopoly as Sydney's sole airport operator may be drawing to a close.
The question is: Does Sydney Airport really care? Even after a second airport is opened at Badgerys Creek in 2026, the existing airport will retain pole position with its location only eight kilometres from the city.
The second airport will be a relatively small hub for low-cost carriers initially. Mainline carriers like Qantas certainly do not plan to operate from there, although its low-cost subsidiary Jetstar might. S&P; says Sydney Airport would have to charge terminal fees of $50 to $70 a person at Badgerys Creek to get a return on the $5 billion cost of building the new facility. This compares to only $9.44 a person at its existing domestic terminal and $35.11 for international.
Those kinds of charges, which are passed on via the airlines, will not wash with the carriers expected to use the new facility in its early years. Sydney Airport has until May to take up its right of first refusal option. It might be bluffing, but there is nothing to indicate it is champing at the bit to take on the project without more government support.
The downside is, it faces more competition if the government finds another investor to back the project. In the short term this will not matter, but airlines will welcome some pricing tension in the longer term.
The government changed the playing field late last year when the formal contractual terms for the second airport backtracked on previous expectations the government would fund about $4 billion for the project. Sydney Airport would have to pay $5 billion to $6 billion to build and operate the airport, which includes a 3700-metre runway and a terminal with capacity for 10 million passengers.
Michael.smith@fairfaxmedia.com.au
Tony Boyd is on leave
