The trick to catch a Tiger
VIRGIN Australia may be forced to live up to its promise to treble Tiger Australia's fleet within five years in order to win regulatory clearance to take control of the budget airline.
The competition regulator has signalled it could go either way in deciding whether to approve Virgin's $35 million bid for a 60 per cent stake in Tiger.
The regulator has raised reservations about the deal because it will effectively return the country to an airline duopoly by removing a third independent player in Tiger.
But the Australian Competition and Consumer Commission is conscious that a rejection could lead Tiger's Singaporean parent to close the operations in Australia. Since it launched here in 2007, Tiger Australia has notched up losses of more than $216 million.
The regulator put the ball back in Virgin's court after releasing on Thursday a "statement of issues" outlining pros and cons of the deal.
Those points amount to an "amber light", which is less worrying for Virgin than the "red light" imposed on Heinz's plans to buy baby-food maker Rafferty's Garden.
But it will still require Virgin to strengthen its argument, which has centred on the benefits of the deal, including plans to expand Tiger's fleet from 11 single-aisle A320 planes to 35 planes by 2018.
ACCC chairman Rod Sims said a third independent airline was "very valuable" because, while Tiger was only 3 per cent of the domestic market, it had a 10 per cent share on some major air routes. "But [Tiger] are really losing a lot of money . . . so we have to decide whether, absent the merger, they would be here anyway," he told BusinessDay.
"On the one hand the second-biggest carrier is taking out the third-biggest - that is bad. On the other hand, if they could bulk Tiger up, it might be a more effective competitor against Jetstar."
The ACCC has made clear a guarantee from Virgin to significantly boost Tiger's fleet will go a long way to gaining approval. The regulator will make a decision on March 14.
Macquarie Equities analysts said Virgin should be able to increase capacity and convince the regulator of the perils of rejecting the deal.
The Tiger bid is one of three deals Virgin unveiled last year aimed at producing a dual-brand strategy to counter Qantas and its budget offshoot, Jetstar.
The two others comprised a $100 million takeover of West Australian airline Skywest - approved last week by the ACCC - and Singapore Airlines buying a 10 per cent stake in Virgin.