Virgin put on notice over Tiger purchase
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 a rejection could lead to Tiger's Singaporean parent deciding to close the operations in Australia. Since it was launched 2007, Tiger Australia has notched up losses of more than $216 million.
The regulator has put the ball back in Virgin's court after releasing on Thursday a "statement of issues" outlining the pros and cons of the deal. The points raised amount to an "amber light".
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 aircraft to 35 by 2018.
The 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 main routes.
"But [Tiger] are really losing a lot of money ... so we have to decide whether, absent the merger, they would be here anyway. That is a serious thing we have to weigh up," he said. "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 that it will commit to significantly boosting Tiger's fleet will go a long way to help convince it to approve the deal. The regulator will make a final decision on March 14.
Macquarie Equities analysts said they believed Virgin should be able to commit to increases in capacity and convince the regulator of the perils of not approving the deal.
The Tiger bid is one of three deals Virgin unveiled last year aimed at giving Australia's second-largest airline its own dual-brand strategy to counter Qantas and its budget offshoot, Jetstar. The others comprised a $100 million takeover of West Australian airline Skywest - which the ACCC approved last week - and Singapore Airlines buying a 10 per cent stake in Virgin.
Frequently Asked Questions about this Article…
Virgin Australia has lodged a $35 million offer to acquire a 60% stake in Tiger Australia as part of a move to create a dual‑brand strategy and strengthen its position in the budget airline market.
The Australian Competition and Consumer Commission (ACCC) warned the deal could effectively return the domestic market to a duopoly by removing an independent third operator. It issued a ‘statement of issues’—an “amber light”—highlighting pros and cons and signalling the acquisition needs stronger justification to gain approval.
The ACCC has made clear that credible guarantees from Virgin to significantly boost Tiger’s fleet and capacity would help convince it to approve the deal. Virgin’s plan to expand Tiger from 11 A320s to 35 by 2018 is a central part of that argument.
Tiger Australia has been loss‑making since launch: the article states accumulated losses of more than $216 million since it began operations in 2007, which is a key factor in the regulator’s assessment.
Tiger holds about 3% of the domestic market overall but around a 10% share on some main routes. The ACCC views a third independent airline as valuable because that route-level share can influence competition even if the overall share seems small.
The ACCC acknowledged that rejection could prompt Tiger’s Singaporean parent to consider closing Australian operations, given Tiger’s heavy losses. Regulators must weigh the harm of reduced competition against the risk Tiger would exit the market entirely.
Alongside the Tiger bid, Virgin unveiled two other moves: a $100 million takeover of West Australian carrier Skywest (which the ACCC approved) and Singapore Airlines taking a 10% stake in Virgin—moves intended to support a dual‑brand approach versus Qantas and Jetstar.
Investors should monitor the ACCC’s final decision scheduled for March 14, whether Virgin formally commits to the planned fleet expansion for Tiger, and any further commentary from analysts (Macquarie noted Virgin could likely make the necessary capacity commitments). These developments will shape regulatory risk and competitive dynamics in the domestic aviation sector.
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