What does $1 buy you these days? A piece of fruit, chewing gum - an airline.
Or 40 per cent of one at least.
Virgin Australia is paying just $1 to take full ownership of Tigerair Australia, a dramatic reduction from the $35 million it paid for a 60 per cent stake in the struggling airline just a year ago.
But the deal with Singapore's Tiger Airways is no bargain.
Tigerair is yet to make a profit in Australia, and Virgin's stake produced an $11.6 million loss in the three months to September alone.
"One dollar is probably about fair value, it's a loss making company," IG market strategist Evan Lucas said.
Virgin is not without its own problems already, incurring a loss of $45 million in the September quarter, which follows a $355 million loss in the 2013/14 financial year due chiefly to its bruising market share battle with Qantas.
Chief executive John Borghetti said full ownership of Tigerair would enable Virgin to bring the discount carrier to profitability within two years.
"Under this proposed transaction, we will benefit from the economies of scale and achieve profitability ahead of schedule by the end of 2016, by leveraging the resources of the wider Virgin Australia Group," he said.
The deal builds on Virgin's plans to mirror Qantas' strategy of owning a full service airline catering for business and well-heeled travellers, plus a discount carrier to serve the leisure market.
Virgin also appears to have international ambitions for Tigerair, having secured international brand rights for the Tiger name as part of its $1 buy.
That could see the carrier competing with Jetstar and Air Asia X overseas in the future.
But analysts say the airline industry remains extremely tough, and Virgin has its work cut out for it with Tiger.
"It's still an incredibly tough market to be in and unless you've got really good market share or a very good brand or an offering that is an absolute standout, it's a really tough place to be," Mr Lucas said.
Share
