Virgin Australia throws down gauntlet to Qantas
It’s a big day in Virgin Australia news with the airline unveiling a trio of announcements.
The airline today revealed that it has invested heavily in the Australian arm of low cost carrier Tiger Australia, purchased full equity of WA carrier Skywest, and to top it all off with a crescendo has sold 10% of the Virgin Australia business to Singapore Airlines.
The news today will certainly lead to interesting times in Australian aviation and will run a chill up the spine of Qantas, who has been battling Virgin Australia’s increasing market share. Game on.
Major Purchase of Tiger Australia
Virgin Australia has purchased a 60% majority stake in Tiger Aiways Australia by investing a lazy $35mil. The purchase of Tiger is seen to be a strategic move that will pitch Virgin Australia / Tiger up against the formidable Qantas / Jetstar team. Virgin Australia hopes to boost the Tiger fleet from 11 to 35 by 2018.
But what is clear from todays announcement is that John Borghetti has no plans to set-up a quasi codeshare between the two airlines – rather, they will remain separate entities. This will please disgruntled Qantas passengers who have inadvertently booked a Qantas flight and later ended up on a Jetstar aircraft – perhaps Qantas will revisit this strategy?
What Virgin Australia will bring to the Tiger table is its experience in managing an airline in a low cost carrier model. Tiger has been besieged by setbacks over the past 12 months and John Borghetti is keen to impart experience and knowledge to bring the airline to profitability.
100% investment in Skywest
Regional airline Skywest, based in Perth in WA, is currently in an alliance with Virgin Australia and sold a 10% stake to the airline in April 2012. Further, Skywest have been flying turboprop aircraft in Virgin Australia livery since the alliance was formed – central to Virgin Australia’s push into the regional market. So it seems like a perfect marriage for the two carriers as Virgin Australia will now increase its share to 100%. Virgin Australia will repaint all Skywest aircraft into its own livery, but Skywest will retain its management team and will still be run independently.
Singapore Airlines 10% Equity
The SQ investment of 10% will be issued as a parcel of 246 million shares with net proceeds of $105mil. The cash from SQ will help Virgin Australia complete the Tiger and Skywest transactions in a “netural cashflow” fashion. Keep in mind that the investment from Singapore Airlines is symbolic in that it imparts confidence in the Virgin Australia strategy and brand.
So what does this mean for travellers?
Whilst all of the above are subject to regulatory approval, once approved travellers are likely to see greater consistency and reach with the Skywest deal with the airline pitting off against QantasLink. Tiger will get its A into G with the guidance of VA’s experts which can only leader to enhanced customer satisfaction and Tiger will face off with Jetstar. Investment from Singapore Airlines is highly symbolic but shows us all that both airlines are keen to work together in the long term.
So what do you think? Is this a good move for the Australian travelling public or will this lead to a duopoly that will stifle competition?