Branson intends to establish a new company, Virgin Australia, offering discount fares on key east coast Australian routes. The no-frills service will have an initial fleet of five Boeing 737 aircraft and start operations in July 2000.
News of Branson's foray into Australia last week sent the share price of Qantas Airways (QF) tumbling by 72 cents to A$4.15 following Branson's announcement on November 28 that he would offer $100 one-way fares on most east coast routes. The value of Ansett Australia (AN), half of which is now up for sale, has also been hit by the news.
Although the domestic air market was deregulated in 1990, AN and QF only briefly faced competition from Compass Airlines, which collapsed twice in the early-1990s.
Branson, however, has the full backing of Australia's federal government in his new venture and much deeper pockets than either of the two owners of Compass Airlines.
"We like a challenge," Branson told a Sydney press conference.
"We like taking on big established companies around the world and seeing if we can shake up an industry.
"The amount of people flying, we think, will go up three-fold. We don't think we actually need to take much business away from Qantas and Ansett. We think we can actually stimulate the market and get hundreds of thousands people to fly more often than they currently fly."
The new airline will be a separate entity from Branson's Virgin Airlines group. It will be capitalised at $US30 million (A$47 million) and employ 300 staff. Branson also plans to redeploy aircraft from his Virgin Express operation in Europe during the European Winter to Australia in the Southern Summer, a peak travel time for Australians.
An important difference between Virgin Australia and Compass is that Virgin will offer a cut-price service with electronic ticketing and no cabin service as opposed to Compass, which tried to compete in quality standards with QF and AN.
Branson's bold move is expected force both QF and AN to launch their own no-frills carriers. AN used to run a discount carrier called East-West Airlines, but merged East-West into its core Ansett operations four years ago.