Air Macau attracts low cost interest

Twelve months ago, Ryanair founder Tony Ryan tried unsuccessfully to negotiate an investment in Air Macau. The SAR flag carrier has lucrative operations to Taiwan and a low cost operating base (relative to neighbouring Hong Kong) at Macau International Airport. Massive new investment in gaming and leisure infrastructure is expected to transform the SAR's economy over the next three years.

Air Macau has exclusive traffic rights from Macau to 31 cities in mainland China, but is undercapitalised and operates to just nine. Macau has liberal air services agreements with 42 other countries, but Air Macau operates to just five foreign destinations: Bangkok, Manila, Incheon, Kaohsiung and Taipei.

According to the Centre for Asia Pacific Aviation there are reports that Virgin Blue is negotiating with Air Macau and its shareholders to allow it to establish a new low cost airline in the SAR. Macau International Airport ­ which backed Thai AirAsia's efforts to establish a service to the city earlier in the year (Thai AirAsia's first route to Southern China) ­ would clearly welcome the latest developments.

But the major hurdle is Air Macau's 25-year sole airline concession at the airport ­ which is the focus of discussions between Virgin Blue, Air Macau and its shareholders, which include CNAC Ltd (51%), SEAP (TAP Air Portugal) (20%), Macau Tourism (14%), EVA Air (5%), Macau SAR Government (5%) and other investors (5%).

If the deal comes off, it would be a massive boost for Virgin Blue. But Air Macau's privileged status gives it a strong negotiating position and there are obviously still some miles to travel.