Virgin Blue strikes airport deal

By Geoff Hiscock
CNN Asia Business Editor

Richard Branson and Sydney Airport CEO Tony Stuart, right, agree to "bury the hatchet" over Virgin Blue's terminal access

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SYDNEY, Australia (CNN) -- Richard Branson's discount airline Virgin Blue and Sydney Airport Corp. have ended their long-running stoush over access to the former Ansett terminal at Australia's busiest airport.

The two parties announced Wednesday they had reached a long-term agreement which will see Virgin Blue passengers using the terminal, now known as T2, from early next month.

As part of the agreement, Virgin Blue has agreed to withdraw its legal action against Sydney Airport Corp., which took control of the terminal on July 1.

The airline claimed in August that Sydney Airport had failed to honor an April agreement on terms of access to the T2 terminal, which was used by Ansett until its final collapse in March this year.

Sydney Airport rejected the claim, saying there was never a final deal with Virgin Blue.

Legal action

Branson later launched legal action. In a statement Wednesday in Sydney, the British tycoon said he was glad "this contentious issue is now put aside".

Branson said the airline could now channel its resources into the international arena. He invited interested parties to help choose the carrier's first regional Pacific destinations.

According to Virgin Blue, the Sydney Airport deal delivers an outcome "comparable to that which it hoped to confirm through legal action".

The agreement is good news for the airline's passengers, who have had to make do with a cramped "temporary" terminal at Sydney for two years.

More flights

Virgin Blue CEO Brett Godfrey said passengers would have "vastly improved facilities" without any fare increase. The deal also means the airline can add more flights.

Since the demise of Ansett, Virgin Blue has become the prime competitor to the dominant carrier Qantas on mainline Australian routes.

Qantas controls about 80 percent of the Australia market, but its CEO Geoff Dixon claims that because of "cherry-picking" by Virgin Blue, Qantas has a lot less than 80 percent of the profitable main trunk routes, such as Sydney-Melbourne.

Shares in Qantas closed half a percent lower Wednesday at A$3.81 on a day the broader market, measured by the S&P/ASX200, put on 0.83 percent.

Patrick Corp., which owns half of Virgin Blue, fell 2.67 percent to A$14.21 after touching a two-month closing high of A$15.17 on Monday.

Gate priority

Virgin Blue said Wednesday that it had struck a 17-year tenancy agreement with Sydney Airport that gave it priority at six of the terminal's 18 gates and access to another six gates to handle future growth.

It claimed the terms were comparable to those it negotiated in April. It said it would continue to use its own IT and baggage handling systems, which had been a point of contention with Sydney Airport.

Sydney Airport CEO Tony Stuart said the agreement was a "sound commercial outcome" for the airport and its shareholders.

A consortium led by Australia's Macquarie Bank bought Sydney Airport in June for Aust. 5.588 billion ($3.2 billion) in what was claimed to be the world's largest airport trade sale. (Full story)

The consortium, known as Southern Cross Airports Corp, includes the German airport operator Hochtief AirPort and the Commonwealth Bank of Australia.

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