Virgin Australia's Tiger takeover decision delayed by ACCC

By John Walton, February 7 2013
Virgin Australia's Tiger takeover decision delayed by ACCC

Virgin Australia's plans to take control of Tiger Airways and position it as a low-cost rival to Qantas' Jetstar have been put in a holding pattern by Australia's competition regulator.

The Australian Competition and Consumer Commission (ACCC) today opted to delay its decision on Virgin's Tiger takeover until the middle of March, allowing more time to consider "the likely future (of Tiger) without the proposed acquisition."

The watchdog says it "anticipates completing further market inquiries by 22 February 2013 and anticipates making a final decision on 14 March 2013."

Crucial to this is the ACCC's considered risk of Australia returning to what would effectively be an airline duopoly.

The regulator suggests this "may raise competition concerns in the market for Australian domestic air passenger transport services" tied to "the risk of muted competition following the reduction in the number of airline groups within Australia from three to two... and the loss of Tiger Australia as an independently owned discount operator’’.

The ACCC has also published a "statement of issues" paper (PDF, 19 pages), which "provides the ACCC’s preliminary views, drawing attention to particular issues of varying degrees of competition concern, as well as identifying the lines of further inquiry that the ACCC wishes to undertake." 

Concerns include whether Tiger's owners would pull the plug on the airline if the deal fell through, whether Virgin drops fares off peak to entice Tiger passengers, and whether a return to an airline duopoly in Australia is good for consumers. 

Would Tiger fold without Virgin investment?

One crux of the ACCC's concern is whether Singapore-based Tiger would be likely to shut down its Australian operations in the absence of a deal with Virgin, and the regulator has asked for comment on whether:

  • Tiger Australia would be likely to exit Australia
  • Tiger Australia would be likely to continue operations within Australia under current ownership, and if so, the nature and scale of those operations
  • another purchaser would be interested in acquiring an interest in Tiger Australia, and if so, the nature of that interest and its implications for Tiger Australia’s operations within Australia
  • Virgin Australia would be likely to establish its own low cost carrier operating under a separate brand.

Would Virgin pull Tiger's discount claws?

It's clear that the ACCC thinks Tiger has a beneficial effect on keeping airfares low within Australia, and that the regulator is also concerned that a Virgin-Tiger group would lose some of those benefits for passengers. 

Part of the problem is that the two airlines are currently competitors: Virgin flies on eleven out of twelve of Tiger's routes. While Virgin Australia argues that its evolution from Virgin Blue means that it effectively no longer competes with Tiger, the ACCC has yet to be convinced.

"Outside peak periods, demand from higher yielding leisure, government and corporate customers may be insufficient to fully utilise Virgin Australia’s capacity," the ACCC says.

"At such times, the most profitable strategy for Virgin Australia may be to discount fares to entice customers away from one of the low cost carriers (Jetstar or Tiger Australia)."

And that's a competition problem. "The ACCC is still considering the extent to which price sensitive leisure travellers remain an important part of Virgin Australia’s overall passenger mix, particularly outside peak periods when there may be lower demand for Virgin’s higher service, higher fare offering," says the regulator.

Back to two choices for flying within Australia?

Australia's return to a domestic airline duopoly — Qantas/QantasLink/Jetstar vs Virgin/Skywest/Tiger — would be a mixed bag for business travellers.

If the routes you fly see strong competition between Tiger and Virgin competed on price, it wouldn't be surprising to see higher fares and some reduction in flights.

But CEO John Borghetti is on record promising that the airlines won't transfer business travellers between the two airlines.

"In effect, Tiger will be run as a separate business with a separate board... it will not be polluted in any form of distraction and will remain true to the from the low-cost carrier concept."

Borghetti stressed that that Virgin and Tiger would not codeshare flights, unlike the current flight sharing between Qantas and Jetstar.

"We have to make distinct separation in marketing, and manage consumer expectations on what they're booking."

For all the latest news for business travellers and frequent flyers, follow @AusBT on Twitter.

John Walton

Aviation journalist and travel columnist John took his first long-haul flight when he was eight weeks old and hasn't looked back since. Well, except when facing rearwards in business class.

Virgin Australia - Velocity Rewards

01 Mar 2012

Total posts 178

I think the ACCC has to be careful with this. If they reject the Virgin take over, logic says that Singapore will most probably pull the plug after so many years of losses. So in a way the ACCC will have caused a decrease in competitive pressures. It is a catch-22 for Mr Sims really.

I feel the deal will go through with certain conditions, ones that Virgin probably had already factored in when they negotiated their investment with Singapore.

Qantas - Qantas Frequent Flyer

02 Aug 2011

Total posts 42

I saw Mr Borghetti speak at a presentation recently, and he stressed to the residents of the Gold Coast, that if the Tiger takeover deal goes through, not one route will be culled to makeway for Tiger and there will be no reduction in services to make way for an increase in Tiger flights. But this dosen't mean we won't see a duopoly occour

Secondly, there seems to be a lot of talk that if this deal with Tiger does not go through, then Tiger might pull out of Australia. So it seems interesting that they are adding more routes just as of yesterday. Seems like a positive step!

Virgin Australia - Velocity Rewards

23 May 2012

Total posts 268

I don't think Virgin Australia should buy Tiger Airways, returning to the airline duopoly pre-1995 was horrible. I reckon Virgin would be a lot smarter setting up their own budget carrier but that could mean pushing Tiger out in the end...

I do, however, support Virgin Australia's buyout of Skywest Airways.

Qantas - Qantas Frequent Flyer

17 Aug 2012

Total posts 2209

I'm inclined to disagree, because if Virgin Australia doesn't set up its competing low-fare brand, the only low-fare brand in Australia left will be Jetstar, and that can't be good for competition.

I believe this duopolym if it eventuates, will be quite different, as it'll be fighting on three different levels in three different theatres, and it won't be as tightly regulated as the old one.

Virgin Australia - Velocity Rewards

01 Mar 2012

Total posts 178

I agree with Watson. It will be different, especially given the conditions that Mr Sims is going to place on the airline.

It wouldn't be smart of Virgin to set up their own operation. They are risking 60% capital in the operation, granted that it is  losing money, but has the potential to turn the corner. If they set up their own they would be in a three way battle for a market, which would be bloody and expensive.

This is why I think they they should either own part of Tiger, hence spreading the risk or they don't competein the LCC market anymore.

08 Feb 2013

Total posts 1

I think virgin's intentions in acquiring Tiger is a positive proposition.  Cheaps flights are popular at the moment between jet star & Tiger and if this allowed to go through by ACCC, Virgin will make it much easier for everyone travelling today.  Also, if this goes ahead & Virgin increase the number of planes from 11 to 35 in the Tiger Fleet, we might see Avalon Airport used a bit more to ease congestion at Melbourne airport & also make it easier for people from the South West region.  Go Virgin, don't give up.  

QF - Red

23 Nov 2012

Total posts 38

i'm enjoying platinum status on Virgin atm and would love to be able to fly at tiger prices and still reap the rewards i.e SC's and VP's kind-of like the current JQ/QF bundles.

Virgin Australia - Velocity Rewards

23 May 2012

Total posts 268

Shragi, I'm not sure if that is John Borghetti's intentions because he wants Tiger to be completely separate from Virgin Australia. Having a low-cost carrier in a premium program doesn't look good.

QF - Red

23 Nov 2012

Total posts 38

well thats sad :-(

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