Virgin Aust ramps up airline price wars

30 Oct 2012, 5:12 pm   -   Source: AAP
Virgin Australia's buy into Tiger Airways will increase Tiger's fleet to 35 aircraft by 2018. (AAP)

Virgin Australia's buy into Tiger Airways will increase Tiger's fleet to 35 aircraft by 2018. (AAP)

Virgin Australia boss John Borghetti says the airline's tie-up with Tiger Airways and acquisition of Skywest will be good for customers and jobs.

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Air ticket prices are expected to drop and aviation jobs rise after Virgin Australia buys a chunk of Tiger Airways and takes over regional airline Skywest.

Virgin took the market by surprise on Tuesday, announcing it was buying a 60 per cent stake in budget carrier Tiger for $35 million and had made a $98.7 million bid for Skywest.

At the same time, Singapore Airlines, which owns a third of Tiger, firmed up its alliance with Virgin by taking a 10 per cent stake in the Australian carrier for $105 million.

Analysts said the multi-million-dollar deals opened up new fronts in Virgin's battle with Qantas and would spark a massive shakeup of the local airline industry.

Virgin boss John Borghetti predicted increased competition across the Australian aviation market, with Virgin re-entering the budget airline market and launching into the fly-in fly-out charter business serving mining companies in remote areas.

"A lot of these markets have been monopolies for too long," he told reporters.

While he said competition would dictate any falls in ticket prices, he noted that when Virgin had previously entered the business market or a new regional area fares dropped 20-30 per cent.

Mr Borghetti was also certain the deals would increase jobs at Virgin, Tiger and Skywest as well as in related industries such as tourism and hospitality.

"It's good for the consumer," he said.

"It's also very good for jobs. It stimulates demand."

While the deals are subject to various regulatory and shareholder approvals, investors gave them the thumbs up.

Skywest soared 16 cents, or 57.1 per cent, to 44 cents while Virgin added 2.5 cents, or 5.4 per cent, to 48.5 cents.

Under the Tiger joint venture, the budget carrier will keep its name for at least 20 years while its fleet would expand from 11 to 35 aircraft by 2018.

"The joint venture will bring about a stronger and more competitive Tiger Australia, and allow us to deploy more capacity and attractive budget offerings to our customers," Tiger chief executive Koay Peng Yen said.

Tiger Australia made a $20 million loss in the three months to September 30, an improvement from a $27 million loss in the same period in 2011.

Revenue grew by $53 million to $62 million.

Under its cash and scrip bid for Skywest, Virgin has secured in-principle agreement from the regional carrier to pursue its offer, which is worth 46.88 cents a share.

Skywest will be rebranded as Virgin Australia but retain its own chief executive and management.

Virgin anticipates the Tiger joint venture and Skywest acquisition to be completed by late June 2013.

Meanwhile Singapore Airlines, which entered an alliance agreement with Virgin in June 2011, has acquired almost 246 million Virgin shares at 42.88 cents each.

Fat Prophets analyst Greg Fraser said Singapore's investment in Virgin, alongside major stakes held by Etihad and Air New Zealand, also gave it the financial clout to take on Qantas.

But he said Virgin needed to significantly increase the size of Tiger and repair the damage done by that airline's grounding by safety authorities in 2011.

Qantas had a muted response, saying it had a trusted stable of brands and was focusing on maintaining its 65 per cent share of the domestic market.

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