A stronger Virgin/Tiger better for the competition

Courtesy Australian Aviation

Courtesy Australian Aviation

THE Australian Competition and Consumer Commission (ACCC) has expressed concerns that Virgin Australia’s acquisition of a 60% stake in Tiger Australia may lead to a duopoly as a result of the reduced competition from three to two players, with Qantas/Jeststar as the other and dominant player. (See SIA releases Tiger into Virgin’s lair, Oct 31, 2012)

But that is likely to be at best a considered part of the due diligence before ACCC endorses the deal. Better a duopoly that includes Tiger in the game, albeit a partner of Virgin, than the exit of the loss-making Tiger which after six years of operations manages to capture only 5% of the Australian domestic market. It will not be a surprise if under the circumstances Singapore Airlines (SIA) which owns a third of Tiger’s Singapore parent calls it quits.

ACCC’s concerns may be valid. Its chairman Rod Sims said there were risks from the increased ability of Qantas and Virgin “to coordinate their activities once Tiger Australia is no longer operating as an independent low cost carrier.” But it can also be argued that a stronger Virgin/Tiger partnership will enhance the competition against rivals Qantas/Jetstar. Virgin is committed to strengthen and expand Tiger, with plans to increase the budget carrier’s fleet from 11 to 35 aircraft by 2018.

Count on it that ACCC is already convinced of its necessary support of the merger, when Mr Sims said:  “If the ACCC were to conclude that Tiger Australia would exit the market in the absence of the proposed acquisition, this would be highly relevant to our assessment.” A decision is expected on March 14.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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