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Jan 31, 2013

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

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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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