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Virgin Australia’s Skywest deal clears ACCC, but …

Some very pivotal deals for domestic air services in Australia are up for approval here and in Singapore, and much more so than in the case with Virgin Australia picking up a Western Australian but Singaporean controlled regional carrier in Skywest

The ACCC seems to have set up something resembling a scene in an old western movie, involving a good guy, lathered up in the barber chair, and the bad guy, holding the cut throat razor, when there is the sound of a pistol being cocked, as it is shoved in the bad guy’s crotch.

Without laboring the metaphor any further, the Australian competition regulator has today approved the deal by which Virgin Australia acquires Singapore controlled WA airline Skywest.

The final approval for this will be that of Skywest’s shareholders, followed by ratification by the High Court of Singapore.

However a week from today, the ACCC will also make or break Virgin Australia’s intended acquisition of a controlling 60% stake in Singapore owned Tiger Airways Australia, which Tiger’s current owners have already approved, enthusiastically.

But the ACCC has already expressed doubts about the Tiger deal.

It is abundantly clear that the Skywest deal is more important to Virgin Australia than the Tiger deal, while the reverse is true in Singapore, where dispensing with Tiger’s hugely disappointing Australian operations is much more important than Virgin getting a leg up in Australia’s regional and resources air services sectors.

Which makes next Thursday an unusually interesting day when it comes to ACCC determinations.

There are indications that Tiger Australia is either going to get sold off, or shut down.  It has been a calamity for Tiger’s Singapore shareholders from day one, and in the latest Q3 financials, was the albatross dragging the big cat under water, but that’s another metaphor ruined.

From both a cynical and realistic perspective, Virgin Australia is unlikely to shed more than crocodile tears if Tiger Australia gets put down.  Its natural competitor Jetstar is itself sending out all sorts of conflicting signals by repeatedly being undercut by Qantas domestic bargains as it engages Virgin in a fare war, resulting in days when the best deals on certain routes can be Qantas 1, Virgin Australia 2 and Jetstar 3, if we ignore Tiger, which consumers seem to be doing anyhow.

With both Virgin Australia and Qantas offering strong competition from discount economy to full service products, and pursuing or leveraging internal efficiencies, it is possible that the costs advantages that the original Virgin Blue and its erstwhile nemesis Jetstar each had over Qantas have narrowed to a point where a single brand strategy can tick all the value boxes needed to compete effectively in the domestic market.

That is claimed to be the case by Virgin Australia, while the signals are less certain from Qantas, since what management says, and what Qantas actually does, seems to be two different things when it comes to pricing and value.

If the ACCC was a cinema, next Thursday’s showing and its sequel would be worth the price of a seat and some popcorn.

This is Virgin Australia’s statement:

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  • 1
    wordfactory
    Posted January 31, 2013 at 2:51 pm | Permalink

    It would be the supreme irony if Rod Sims, a career public servant who has rarely strayed from the Canberra milieu, caused the shutdown of Tiger due to “competition concerns” – and the ensuing steep escalation in discount air fares. Al least his predecessor, Graeme Samuel, understood how businesses that operate in the real world work.

  • 2
    Creeper
    Posted January 31, 2013 at 5:43 pm | Permalink

    Ben do you think the Tiger deal will be approved?

  • 3
    Ben Sandilands
    Posted January 31, 2013 at 6:22 pm | Permalink

    Yes. I think the ACCC will blink.

    Which of course means they won’t and that it will be disallowed.

  • 4
    Rufus
    Posted January 31, 2013 at 7:40 pm | Permalink

    Surely those times when Qantas is cheaper than Jetstar on various routes is simply a case of yield management in action? JQ has sold all its cheap seats at that stage; it’s prepared to take a punt on selling just a few more for a higher margin, whereas QF might still have a few cheap fare classes left. Nothing remarkable about that, is there?

  • 5
    Ben Sandilands
    Posted January 31, 2013 at 8:09 pm | Permalink

    Rufus,

    I think when Qantas.com continues to show cheaper fares day in and day out than Jetstar on certain routes we can at least conclude that something odd is going in in yield management, as you say.

  • 6
    patrick kilby
    Posted January 31, 2013 at 8:58 pm | Permalink

    Maybe there are now quite different market segments (dare I use the term bogon versus yuppies/silver tails) which are less price sensitive on the marginal yield seats (odd that that seems).

  • 7
    BillyG
    Posted February 1, 2013 at 1:55 am | Permalink

    Not sure if you are aware Ben but yesterday Jeff Chatfield (Skywest) sent out comms to his staff outling the west coast operation is losing 1 million a week. Immediate redundancies began yesterday, including some very senior staff. No crew yet. ATR operations will remain untouched – lets see for how long.

  • 8
    Agfox
    Posted February 1, 2013 at 5:17 pm | Permalink

    wordfactory

    You may want to check Rod Sims’ biography here http://www.accc.gov.au/content/index.phtml/itemId/812026; he has had extensive experience outside the ‘Canberra milieu’ & would seem to have more than a passing understanding of how businesses ‘…operate in the real world…’

  • 9
    grubbidok
    Posted February 2, 2013 at 12:51 am | Permalink

    Hi Ben, love your work and great to see a story on Virgin – it’s been too long. One thing that I’ve wondered about is why you’ve not covered the big Virgin story yet? I’m talking about the disastrous Sabre transition and how VA mismanagement of this process (particularly with regards to high profile FFs) is testing the patience of those it has won over from QF, and may even lose many of its recent gains. The media silence around this (from the likes of you and AusBT for example) seems surprising given the heated debate it’s causing in social media and forums like AFF. Would love to read your thoughts and insights on this issue.

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