Virgin Australia

Tiger Airways narrows losses in FY2013 - but challenges for FY2014 remain

Tiger Airways has narrowed its losses in the year to 31-Mar-2013 and extended its operating profit to a second consecutive quarter while forecasting a positive operating result by mid-Jul-2013 after the sale of 60% of Tiger Australia to Virgin Australia is completed.

The carrier also plans to add frequencies to high demand routes between Singapore and Malaysia and expects to take delivery of 10 A320 during the financial year, half of which will be allocated to the Singapore operation and the remainder between Tiger Australia and two associated airlines, Mandala and SEAir.

Tiger Singapore will use the aircraft to increase capacity by about 25% by the end of FY2014 and taking advantage of expanded bilateral rights between Singapore and Indonesia which will also boost Mandala. However, the group still faces significant challenges as it strives to nurture three affiliated carriers in Australia, Malaysia and the Philippines to profitability.

Qantas-Emirates alliance: the last piece of the puzzle falls in place across the Tasman

The final piece of the Qantas-Emirates alliance has fallen into place with the New Zealand minister of transport Gerry Brownlee giving his belated approval for the two carriers to extend their union across the Tasman by authorising a master coordination agreement. This will to all intents and purposes turn the Tasman market between Australia and New Zealand into a duopoly between the Qantas-Emirates Group and Air New Zealand-Virgin Australia partnership.

The Australian Competition and Consumer Commission (ACCC) had already granted Qantas and Emirates conditional approval for the trans-Tasman leg when it gave the final green light for the pair’s broader global alliance in Mar-2013. Mr Brownlee, who under New Zealand law has the authority to rule on arrangements between two airlines where this involves price or capacity fixing of international air services, had originally been expected to make his decision by the end of Mar-2013.

Singapore Airlines cements its partnership with Virgin Australia, joining ANZ and challenging Etihad

Singapore Airlines’ (SIA) move to nearly double its holding in Virgin Australia to 19.9% reinforces the SIA Group’s new strategy of focusing more on Asia-Pacific, including the Australian market. The recent purchase of an additional 9.9% stake in Virgin Australia from founding shareholder Virgin Group also dilutes the presence of SIA rival Etihad, which now owns about a 9% stake in Virgin Australia.

Although equity is not the main driver, the increased stake could give the SIA Group an edge as it looks to further deepen its codeshare partnership with Virgin Australia, particularly in the key Australia-Europe market.

Independent Virgin Australia has quickly emerged as SIA’s most significant partner in the two years since the two airline groups first forged a codeshare agreement, a further testament to the waning importance of global alliances. SIA, which is a longstanding member of Star but has traditionally taken a passive role in the alliance, is keen to embed its relationship with Virgin Australia as other current and prospective partners circle.

Virgin scores an important bilateral victory against Qantas on Australia-Italy route

Virgin Australia has scored an important victory against Qantas in the battle for access to bilateral capacity between Australia and Italy, being awarded 300 of the 1000 weekly seats available on the route.

The Italy decision is likely to set the scene for other markets where Virgin Australia may seek to challenge Qantas’ dominant third country carrier codeshare seat allocation as they come up for review over the next few years. Both carriers are competing for bilateral seat capacity to maximise the benefits of their largely virtual networks to Europe.

Qantas had previously held Australia’s entire codeshare capacity entitlement on the Italy route under two determinations. The carrier had to have the first of these involving 600 seats renewed for a further five years by the Australia’s International Air Services Commission (IASC). The remaining 400 seats held by Qantas are not due for renewal until 2015, at which point it can expect a further challenge from Virgin Australia.

Virgin Australia on 08-Apr-2013 was granted 300 of the 600 seats available for five years. It will offer the seats between Australia and Rome via Singapore and between Australia and Milan via Singapore and via Abu Dhabi.

Virgin Australia gains Tiger Australia to complete the domestic set

Virgin Australia has been granted approval to buy a 60% stake in LCC Tiger Australia by the Australian Competition and Consumer Commission (ACCC) and in so doing puts in place the final piece of a puzzle that allows Virgin Australia to compete against the Qantas Group on a level footing.

The ACCC agonised over the ground-shifting decision with concerns that returning the Australian market to a duopoly would remove the benefits that Tiger Australia had brought as a third competitor when it launched in Nov-2007. The commission delayed its decision by nearly six weeks while it sought more information from Virgin Australia and Tiger Australia to provide the comfort it needed.

Ultimately ACCC chairman Rod Sims concluded that “this acquisition is unlikely to lead to a substantial lessening of competition in the Australian market for domestic air passenger transport services”.

Virgin Australia chief executive John Borghetti said: “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 Australia moves to integrate Skywest and challenge Qantas’ regional domination

Regional Australia has become the new competitive focus for domestic carriers in the wake of Virgin Australia’s acquisition of Skywest in Western Australia and moves by Qantas to firm up its position in the East.

Skywest has provided Virgin Australia with a much needed boost to its regional network allowing it to better compete with Qantas. Regional traffic is growing but Virgin Australia’s efforts to enter some markets are being hampered by regulatory restrictions on many routes in the interest of service stability. Virgin Australia has already intimated that it could move its headquarters from Brisbane in frustration at a decision to delay tenders for regional Queensland routes until 2014.

Qantas is responding to the renewed threat of increased competition on its regional network, having added another four Bombardier Q400 turboprops to its fleet. It will take delivery of more regional aircraft in 2H2013, including another five Boeing 717s, to bolster capacity.