October 17, 2014
Virgin Australia buys full control of ailing Tiger Australia Airways
How times can change in just over 14 months. In June 2013 Virgin Australia paid the substantial sum of AUD$35m for a 60% equity stake in Tiger Australia Airways, then wholly owned by Tiger Airways Singapore, a 40% of which was then owned by Singapore Airlines. Move forward to today and the remaining 40% of Tiger Australia Airways has been sold to Virgin Australia for the princely sum of AUD$1.00. The reason? As described by Virgin Australia “ongoing subdued consumer demand in the Australian domestic market”.
Airlines operating in that region are losing money hand over fist and this move is not so that Virgin Australia can expand their fleet, but instead take control of the whole Tiger Australia Airways and streamline the operation. Over the year, Virgin’s holding in Tiger produced losses of AUD$46 million. For the quarter to September 30, Virgin’s losses from Tiger increased to AUD$11.6 million. At the same time, on Friday Tiger Airways Singapore also reported heavy losses, and said Singapore Airlines would be raising its stake to 55%.
In a curious twist of economics and the ‘supply and demand’ effect on prices, Virgin Australia and Qantas are adopting a clever new strategy after each successfully shot themselves in the foot during a recent price war while the economy faltered. After losing a combined AUD$2.63bn both carriers have decided to limit the availability of seats on domestic flights in an attempt to drive prices upwards – a clever tactic that neatly avoids any hint of ‘price fixing’. John Borghetti, Virgin Australia’s Chief Executive confidently stated: “Under this proposed transaction, we will benefit from the economies of scale and achieve profitability ahead of schedule by the end of 2016″.