There are some important underlying issues in the continued delay by the ACCC in reaching a decision as to whether or not to allow Virgin Australia to be like Qantas, and have a second brand low cost carrier by in this case buying control of the Tiger Airways franchise in Australia.
But the survival of Tiger isn’t itself all that important. It is a failing enterprise, and Virgin Australia has a successful single brand strategy with which it has met, in one form or another, the combination of Qantas and Jetstar since Jetstar began flying in 2004.
One very important reason for Virgin as Blue and Virgin as Australia being able to survive the onslaught was the perverse effect the Jetstar experience had on loyal Qantas customers, which made them turn to Virginity as an alternative.
That kiss of death effect is still a huge plus for Virgin Australia (and it needs one!) when it comes to Asia.
Qantas continues to claim, but most surely know better, that telling its premium or full service customers to Asia that they should break their journey, usually in the middle of the night, at Singapore’s Changi Airport to downgrade and pack themselves into a Jetstar Asia connection is about as fatal a brand combination as it is possible to devise.
But Virgin Australia has full service offerings all the way through to many Asia destinations courtesy of its links with Singapore Airlines and its full service single aisle brand SilkAir, where the latter is relevant, which is in dozens of cities not yet served by Jetstar franchises anyhow.
If the hinted at talks between Virgin Australia and Cathay Pacific similarly stitch up connections via Hong Kong for those cities where Hong Kong is more direct than Singapore, it is apparent that Qantas has a significant problem in Asia that no amount of Jetstarring is going to solve, although that is not to argue that as a truly low cost low fare initiative and brand, the expansion of the Jetstar franchise in its own right isn’t a good idea. If it works, and makes lots of money. (At the moment it appears to be working to a degree and making almost no money. )
It would be reasonable to say that at the moment what Tiger does in Australia is irrelevant to Virgin Australia, and left to its own devices there are abundantly obvious signals from Tiger that it will shut down its money bleeding Australian operation if it can’t punt 60% of the risk to Virgin Australia, which probably couldn’t care less whether it picks it up or not.
The ACCC didn’t read those signals when it first expressed doubts about letting Virgin Australia do in relation to Tiger what a previous ACCC had let Qantas do in relation to Jetstar, which it originated within the company rather than proposed to purchase, which is what Virgin Australia is doing.
But why is Virgin Australia proposing to buy 60% of Tiger Airways Australian division? Because its new 10% equity holder Singapore Airlines, which is exposed to 32% of the entire Tiger franchise, wants it to.
There is an important difference too in what Virgin Australia says it will do with Tiger Australia (if it has to) compared to what Qantas did with Jetstar. Virgin says it will keep Tiger’s brand out of its own activities, so that unlike Qantas, when a customer visits the Virgin Australia site, there will be no offers displayed for Tiger services.
As Qantas recently conceded when it made changes to the way it displays Jetstar options on on Qantas.com, any consumer confusion as to what type of service they have purchased on Qantas.com can adversely affect that consumer’s perception of Qantas when the flight turns out to be a Jetstar flight.
One way ACCC approval for the Virgin Tiger deal would however benefit the Virgin group would be to erode if not wash over the Qantas group line in the sand of 65% domestic market share, if we assume that the official BITRE statistics will accord 60% of Tiger’s roughly 5% share of the market to the Virgin group as a 3% rise in its share.
The actual state of the respective market shares will it seems be redefined by Qantas expanding its directly owned share of the resources industry trade in competition with Virgin Australia doing the same thing with its yet to be finalised purchase of Skywest, which already operates in Virgin Australia branding its growing regional turbo-prop network.
This is not to predict that Virgin Australia will cross the line in the sand. But it will certainly threaten it more convincingly if it is booking 60% of Tiger’s traffic as its own. If Tiger survives!