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Thursday, 14 March 2013

Tiger to Go if ACCC Say No

Somewhere in a government funded office, a small number of employees of the Australian Consumer & Competition Commission (ACCC) are trying to make a decision on the fate of Tiger Airways.

The situation before them is simple enough. Virgin Australia wants to buy a 60% stake in fledgling Tiger Airways for the bargain basement price of about $36 mil. What they'd get for their money is about a dozen A320's, a similar number of routes, & a sledge hammer to knee-cap Qantas at the Low Cost Carrier (LCC) end of the market.

Photo: australianaviation.com.au
Photo: australianaviation.com.au

But the ACCC is worried. They fear a scenario where Qantas & Virgin control the complete Australian airline market spectrum in a synchronised duopoly. As a result, the expected due date for their decision this week was preempted to announce that they need more time, more information, & no doubt a lot more coffee.

At stake in their decision is not just a huge commercial advantage to Virgin Australia. The very existence of Tiger Airways & employment of some 500 staff hang in the balance. Tiger Airways hasn't made a profit since it began 5 years ago, & it's Singaporean masters have pretty much had enough. There's plenty of gossip around that Tiger may be folded if the deal falls through, & I have been personally told by a Tiger Airways pilot that an email has circulated to all staff advising that this is precisely what will happen.

Are Tiger staff about to get their marching orders?
Photo: www.ausbt.com.au
The ACCC is aware of this too. According to The Australian newspaper, "ACCC chairman Rod Sims indicated the commission could approve the merger if there was proof Tiger could fail without Virgin's intervention and there was a commitment to increasing capacity at the financially troubled low-cost carrier to make it a viable competitor to Qantas's Jetstar operation."

Virgin has already stated that they plan to pump cash into the company & increase the Tiger fleet to up to 35 aircraft, but beyond that, seem coy about offering any further "commitment" in such a limited, volatile & potentially fatal business environment. They might be keen, but they're not stupid.

 And whilst a rejection might mean an unfortunate crash landing for Tiger & its staff, I doubt it would be the end of the world for Virgin & its' desire to take on Jetstar. There's been talk within the Virgin Australia boardrooms for years about starting their own "ultra" LCC, but it seemed Tiger was getting in the way of them getting a clean shot.

When Virgin traded in their sexy Embraer 170's for cheaper ATR-72's, they gave the job of operating them to their new friends at Skywest airlines, as they were "more experienced" in operating turboprop aircraft. Skywest now operates the A320, which will soon be flying in Virgin Australia colours since Virgin successfully bought out 100% of Skywest too. The A320 is the LCC aircraft of choice, operated by both Tiger & Jetstar. You see where this is going? I predict, if the Tiger deal falls over, Virgin will lease a whole bunch of A320's, come up with a new brand name, & give them to Skywest to run their LCC against Jetstar whilst the Virgin Australia brand goes after the high end from Qantas. And if Virgin cant have Tiger, they'll simply rub them off the map. 

For the sake of all the dedicated, hard working & committed Tiger staff, I personally hope that the ACCC sees reason & has a little compassion, & sees fit to grant them a new lease of life. Best wishes Tiger.

ACCC Website. What happens now is anyones' guess.


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