Don’t write off Branson

The odds are against him, but Emirates Airline should heed the warnings. Four months ago I spotted Virgin boss Sir Richard Branson in the Burj Al Arab. He was in Dubai to promote the launch of Virgin Atlantic's service to Dubai, which starts this Tuesday. And, as always, he was more than happy to talk. To talk about anything, except his pricing policy on tickets.

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By  Anil Bhoyrul Published  March 26, 2006

|~||~||~|The odds are against him, but Emirates Airline should heed the warnings. Four months ago I spotted Virgin boss Sir Richard Branson in the Burj Al Arab. He was in Dubai to promote the launch of Virgin Atlantic's service to Dubai, which starts this Tuesday. And, as always, he was more than happy to talk. To talk about anything, except his pricing policy on tickets. “If I were to announce today that we are coming in at a lower fare, then Emirates and British Airways would do the same. There would then be a fierce price war which I do not think would be good for anyone,” he explained. As we all now know, he has done just that. Virgin Atlantic’s fares between London and Dubai will be nearly half those of Emirates Airline, as long as you travel in April. It is a stunt that has already had the desired effect — almost all Virgin’s seats have been sold out. It’s easier to get tickets to see Robbie Williams than fly on Virgin in April. The initial loser in this war is of course Emirates Airline, which usually has 70% of its seats filled on the same route — which it flies nearly 50 times a week. Of course, given the fact that, for now, Virgin is only flying four times a week, the impact on Emirates will be negligible. But long term, the picture could be different. So far, the Emirates Airline story has been one of success and greater success. Nobody can argue with annual profits of US$708 million. However, it now faces a threat in its very own backyard. Branson’s style is to come in cheap, blaze the market and hope it will stay loyal. And it usually works — in the last thirty years, Virgin has created five totally separate billion dollar businesses. If lumped together as one, the Virgin Group has sales of well over US$10 billion a year, and profits that top US$500 million. Virgin makes a serious amount of money, and always will. Emirates has nearly US$1.7 billion in cash reserves, and is more than able to put up a fight. So far though, we have heard nothing. A few mumbles of joining in a price war, and the possibility of a rival advertising campaign. Nothing more. This time though, it would be ill advised to simply expect the competition to fade away. Branson is here, and here to stay.||**||Law and disorder|~||~||~|There is good news for all expatriates living in Saudi Arabia. From Saturday, you can at long last invest in the Saudi Tadawul. Hoorah! The six million strong expat community earns an estimated US$35 billion a year, of which US$15 billion is transferred out of the country. Well, from Saturday it’s not just mutual funds but real shares that Saudi expats can get their hands on, thanks to a decree from King Abdullah. The question is will anyone bother? The Saudi market has plunged by 20% over the last two weeks. A similar pattern has been seen at the Dubai Financial Market, the Abu Dhabi Securities Market and in Kuwait, where investors have taken to the streets in protest (at what I don’t understand). Nevertheless, it is clear this is not a good time to be investing in stocks in the GCC. Most respected analysts are predicting further falls, corrections, crashes…whatever you want to call it. The change in Saudi laws is, understandably, being made to attract more liquidity into the market. Investors should not be swayed by it.||**||Pump up the gas|~||~||~|With stocks and shares on the rocks across the region, the way ahead may lie in energy futures. And to this end, noone is better placed than Qatar. Last week saw the start of work on the US$2.6 billion Energy City project, aimed at turning Qatar into a regional energy hub. Not a bad idea, given the fact that after Russia and Iran, Qatar has the world’s third largest gas reserves. Even more impressive is the announcement by Qatar’s Economy and Trade Minister, Shaikh Mohammad Bin Ahmad Al Thani, of an energy futures exchange, the International Mercantile Exchange (Imex). There is no launch date yet for Imex, but it will operate from Qatar’s Energy City. By the time it opens, the GCC’s stock markets may again be soaring. However, given the current earnings levels of major companies, and the possible rise in interest rates, my own view is that Imex may be the best place to stick your cash. Whenever it opens.||**||

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