SIA ups stake in Virgin Australia: No big deal

Courtesy Reuters

Courtesy Reuters

Singapore Airlines (SIA) is upping its stake in Virgin Australia from 10 to 19.9 per cent, at a cost of A$122.6 million (US$125.8 million). Underlying the growing cooperation with the Australian carrier, SIA chief executive officer Goh Choon Phong said: “Increasing our stake in Virgin Australia is another example of Singapore Airlines’ deep commitment to the important Australian market. It also demonstrates our support for the ongoing transformation of Virgin Australia, which has created a more competitive aviation market in Australia.

This is no big deal compared to the 49-per-cent stake in Virgin Atlantic that SIA acquired more than a decade ago. While it turned out to be a lacklustre buy, it made big news then. The stake was only recently sold to Delta Airlines at a loss. The graduated acquisition reflects a cautious approach that is markedly tame compared to the strides it made in better days. Until Virgin Australia made a larger global presence, the dollar benefits to SIA are likely to be localised.

Interestingly, SIA’s decision to increase its stake in Virgin Australia followed on the heel of the Australian authorities’ approval of the sale of a 60-per-cent stake in loss-making Tiger Australia to Virgin Australia. The Australian Competition and Consumer Commission (ACCC) said Tiger Australia was “highly unlikely to remain in the local market if the proposed acquisition didn’t proceed.”

While it is in ACCC’s interest to maintain a competitive environment within Australia, so too in SIA’s interest to combine forces with Virgin Australia lest the scene is dominated by Qantas. Aviation analysts are quick to point out that the Tiger Australia divestment would allow parent Tiger Airways to focus on markets elsewhere in Asia, where there is heightened competition from other budget carriers such as AirAsia, Jetstar and Lion Air. There is comfort in the reasoning, but to ascribe it as the reason is belittling Tiger’s capability to compete, making it sound more like the cry of the vanquished than that of a victor.

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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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