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."
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