Virgin won't commit over Tiger fleet
VIRGIN AUSTRALIA insists it cannot give an "iron-clad guarantee" it will triple the size of Tiger's Australian fleet within five years because of the volatile nature of the industry.
The competition regulator has indicated a condition of it approving Virgin's bid for a controlling stake in Tiger Australia will be it living up to plans to boost its fleet from 11 to up to 35 planes by 2018.
But speaking after Virgin posted a more than halving in first-half profits, the chief executive, John Borghetti, said it would be irresponsible to give a firm commitment to boosting Tiger's fleet to 35 as it operated in a "very volatile industry".
"You can't give an iron-clad guarantee on something like that because you just don't know what's around the corner," he said, citing the importance of the words "up to" when it announced plans for Tiger. "No airline in the world would give a capacity commitment for five years."
The airline's bid for Tiger, and approved takeover of regional airline Skywest, threatens to return Australia's market to a duopoly.
Virgin and Tiger's Singaporean parent appear to be relying on the so-called "failing business" argument to win approval from the regulator, although their case has not been helped by the budget airline adding new routes to its Australian network.
Tiger's Singaporean management has also intimated they will pull their airline out of Australia if the regulator does not approve the deal.
Virgin's refusal to make a firm pledge came as its net profit fell by 56 per cent to $23 million in the first half due to a "capacity flood" in the domestic market and the impact of the carbon tax. The result was lower than analysts had expected, resulting in almost a 6 per cent slide in Virgin's share price.
Pre-tax earnings from its core domestic business fell by 44 per cent to $49 million in the first half, as it faced the biggest increase in capacity since the launch of Jetstar nine years ago. However, analysts said Virgin's earnings decline in the domestic market was not as steep as Qantas's in the first half.
"Clearly they have taken share from Qantas in the corporate market. The domestic market is no longer the really lucrative market it used to be," CBA Equities analyst Matt Crowe said. "They are putting a lot of capacity in the market, and both companies' earnings are being affected by this yield weakness. The only ones winning are customers."
Mr Borghetti said it had been clear over the past eight months "that we have withstood the most strong competitive response that I have seen in this market for a very long time". "You would have to believe that we are being hurt less than them (Qantas)," he said.
Virgin has not given specific earnings guidance for the financial year because of "uncertainty in economic conditions and the competitive environment". It has not made a second-half profit for five years.
The airline plans to boost capacity in the domestic market by 5 to 7 per cent in the second half, compared with the same period in 2011-12. It will increase flights between Brisbane and Perth from May using A330 planes, as well as begin new routes between the sunshine state's capital and Moranbah and Bundaberg.