Virgin Australia takeover of Tiger Airways approved by ACCC

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  1. Virgin Australia takeover of Tiger Airways approved by ACCC

    The Australian Competition and Consumer Commission has cleared Virgin's takeover bid of Tiger Airways. Source: AFP
    AUSTRALIA will return to an effective airline duopoly after the competition watchdog today said it would allow Virgin Australia’s 60 per cent takeover of low-cost carrier Tiger Airways Australia.
    In what had been described as one of the Australian Competition and Consumer Commission’s more difficult decisions, the consumer watchdog found that the $35 million acquisition “unlikely to lead to a substantial lessening of competition in the Australian market for domestic air passenger transport services".
    It did not impose conditions on the airline regarding future growth, something Virgin had warned could torpedo the deal.
    The decision came as the airline’s Singaporean owners had strongly indicated they would shut down the airline if the deal did not proceed.
    The airline had posted a string of losses and had not recovered from a 2011 grounding by the Civil Aviation safety Authority because of safety issues.
    “Essential to reaching this view was the ACCC’s assessment, made after thorough and extensive testing of the issue, that Tiger Australia would be highly unlikely to remain in the local market if the proposed acquisition didn’t proceed,’’ ACCC chairman Rod Sims said.
    “Absent this conclusion the acquisition raised considerable competition concerns.”
    Mr Sims said the ACCC had taken particular regard to Tiger Australia’s history of poor financial and operational performance and concluded that its 11 Air bus A320 planes would probably be transferred to Asia if the deal was not concluded.
    He said Virgin now had the opportunity to pursue its stated objective of transforming Tiger Australia into an effective competitor for Jetstar.
    “In six years in Australia, Tiger has never made an operating profit, and its current losses are large. These losses remain a big drag on the entire Tiger group,” Mr Sims said.
    “The ACCC also tested the likelihood of Tiger Australia’s performance being improved by either its current owner (the Singapore-based Tiger Airways Holdings Limited) or other potential shareholders or joint venture partners if the proposed acquisition did not proceed.
    "The ACCC considered it unlikely given the current circumstances that Tiger Australia would be turned around under any of these scenarios to provide vigorous competition as an independent operator.’’
    Virgin Australia welcomed the decision and said it would allow it to better serve budget travellers.
    It has yet to name a chief executive for the company but one is believed to be in the wings and the partners have promised to pump another $62.5 million into the company.
    "We are very pleased to receive clearance from the ACCC for the proposed acquisition of 60 per cent of Tiger Australia,’’ chief executive John Borghetti said.
    “There is a real opportunity to provide strong competition in the budget travel segment and bring further benefits to consumers.
    “By partnering with Tiger Airways, we can use our local expertise to build a sustainable budget carrier, which will offer great value airfares and benefit jobs and tourism in Australia.’’
    Virgin said the transaction remained subject to certain conditions and regulatory approvals, including from the Foreign Investment Review Board.
    Singapore-based Tiger Airways chief executive Koay Peng Yen said two strong shareholders would leave Tiger Australia better placed to tap opportunities for further expansion.
    The airline wlould also be able to leverage the strengths of both its shareholders in network planning, operational management, and procurement, with a low cost and internet-based distribution platform.
    “With this approval in place, we can now look forward to commencing discussions with Virgin on our plans to grow Tiger Australia, and enable it to compete more effectively in the Australia’s budget carrier space,” Mr Peng said.

    Qantas reacted cautiously to the decision.
    "The Qantas Group has generally supported tie-ups between airlines," it said.
    “We’re comfortable with our position as the leading full service airline, the leading regional airline and the leading low fares airline in the Australian market."
    Tourism and Transport Forum acting chief executive Trent Zimmerman described the approval as good news for the tourism industry and one that would ensure Tiger Australia would continue to operate.

    “This is a sensible outcome which will benefit Australia’s $96 billion tourism industry and the 514,000 people it directly employs," he said.
    “Maintaining a second low-cost carrier will ensure healthy competition at the price-sensitive end of the market.
    “It will ensure the travelling public has more choice and will help to keep fares down."
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