Virgin Australia has in effect been given the go ahead to take control of Tiger Airways Australia and operate a second brand low fare carrier similar to the strategy of the Qantas group in launching Jetstar in 2004.
The ACCC statement says:
The Australian Competition and Consumer Commission (ACCC) has announced that it will not oppose the proposed acquisition by Virgin Australia Holdings Limited (Virgin Australia) of 60% of Tiger Airways Australia Pty Ltd (Tiger Australia).
Virgin Australia is the second largest domestic airline operator in Australia, behind the Qantas Group.
Tiger Australia is a domestic airline that commenced operations in November 2007 and currently services 16 domestic routes with 11 aircraft. Tiger Australia operates under a low cost carrier model which primarily focuses on price sensitive leisure travellers.
“The ACCC’s view is that this acquisition is unlikely to lead to a substantial lessening of competition in the Australian market for domestic air passenger transport services,” ACCC Chairman Rod Sims said.
“Essential to reaching this view was the ACCC’s assessment, made after thorough and extensive testing of the issue, that Tiger Australia would be highly unlikely to remain in the local market if the proposed acquisition didn’t proceed. Absent this conclusion the acquisition raised considerable competition concerns.
“In making this assessment the ACCC had particular regard to Tiger Australia’s history of poor financial and operational performance. In six years in Australia, Tiger has never made an operating profit, and its current losses are large. These losses remain a big drag on the entire Tiger group,” Mr Sims said.
“The ACCC also tested the likelihood of Tiger Australia’s performance being improved by either its current owner (the Singapore-based Tiger Airways Holdings Limited) or other potential shareholders or joint venture partners if the proposed acquisition did not proceed. The ACCC considered it unlikely given the current circumstances that Tiger Australia would be turned around under any of these scenarios to provide vigorous competition as an independent operator. Instead its key assets, being the 11 Airbus aircraft, would very likely be redeployed into the Asian operations of its parent company.
“The ACCC would always prefer to see a greater number of independent airlines competing in the domestic market. However, our investigations showed that Tiger Australia had been unable to establish itself as a viable competitor despite substantial investment and numerous changes of management and strategy over the years. We concluded that it was highly likely that Tiger Australia would leave the market if this acquisition didn’t go ahead, and accordingly blocking the acquisition would not serve to protect competition,” Mr Sims said.
“Virgin Australia now has the opportunity to pursue its stated objective of transforming Tiger Australia into an effective competitor to Jetstar for price sensitive travellers.”