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The last couple of years have seen a number
of developments involving Australian
carriers boosting their international
credentials through new partnerships
and equity arrangements. Qantas secured a major
alliance agreement with Emirates -- following Virgin
Australia, which jumped into bed with Etihad -- having
already clinched deals with Air New Zealand and
More recently, however, Australia's two largest
carriers have turned their attention to the domestic
market, and the stage is now set for intensified
competition in their own backyard.
Virgin Australia's announcement late last year of
its planned acquisition of 60 percent of the existing
shares of Australian low-cost airline Tiger Airways
Australia from its Singapore-based parent Tiger
Airways, as well as all of West Australian regional
airline Skywest, will further change the Australian
landscape this year.
In the Tiger deal, Virgin will purchase the stake
for A$35 million (US$36.9 million), plus an
additional payment of A$5 million to Tiger Airways
if the Australian operator achieves certain financial
performance targets within five years. Tiger and Virgin
have committed to invest a further A$62.5 million into
the business to fund its growth, which could see the
airline's fleet grow from 11 to 35 aircraft by 2018.
Tiger Australia will be managed as a standalone entity,
including a separate board and management team.
It will continue to operate under the Tiger Airways
brand as a low-cost carrier (LCC) providing domestic
air travel services in Australia with Airbus A320
aircraft. The head office will remain in Melbourne,
with operational bases at Melbourne Tullamarine and
The deal is a major boost to Tiger Airways Australia,
which is still trying to get back on its feet after an
enforced grounding due to safety concerns by
Australia's Civil Aviation Safety Authority (CASA) in
2011. Restrictions on the carrier were fully lifted late
last year, but it is still working to repair its damaged
For Virgin Australia, the acquisition is a way to re-
enter the low-cost market, which it has moved away
from under its 'Game Change' strategy, focusing its
attention on securing more of the high-yield corporate
and business end of the market. That strategy has
proved highly effective, with Chief Executive Officer
John Borghetti revealing at the airline's results
presentation in November that the carrier has
"surpassed our target of 20 percent of domestic
revenue from the corporate and government market"
one year earlier than it expected to.
This follows the restructuring of the company's
domestic network, including: the expansion of its
presence in regional Australia; the introduction of
business class on domestic services; the introduction
into service of new Airbus A330-200s, Boeing 737-
800s and ATR 72 turboprops; refurbishment of the
fleet; and the upgrade and opening of airport lounges.
Virgin Australia has now moved on to the next
phase of its strategy -- dubbed 'Game On' -- which
is aimed at driving growth opportunities and ensuring
the sustainability of the business through continuing
to diversify earnings.
The Tiger stake "enables Virgin Australia to access
the budget market and enables Tiger Australia to
expedite its growth, providing greater competition
to this important market segment," says Borghetti.
"By partnering with Tiger Airways, we can use our
expertise to leverage Tiger Australia's competitive
cost base and build a sustainable budget carrier.
We are committed to maintaining the Tiger Australia
business model and brand."
The acquisition of 100 percent of Skywest,
meanwhile, is the latest move in Virgin Australia's
strategy of building its share of the booming fly-fly-in
(FIFO) resources market, as well as expanding its
presence in regional markets. Virgin Australia first
established a partnership -- the Australian Regional
Airline Network agreement -- with Perth, Western
Australia-based Skywest in October 2011. That
agreement involved codesharing on regional services
and Skywest operating eight ATR 72s on behalf of
Virgin on regional services, increasing to 12 aircraft
by the end of 2013. Virgin followed up that deal by
acquiring 10 percent of the carrier last April.
Under the latest deal, Virgin is acquiring all of
Skywest and absorbing it into the Virgin brand.
However, the smaller carrier will continue to operate
under its own air operator's certificate, with its own
The Australian domestic market is set to undergo another transformation
as Virgin Australia squares o against Qantas in all sectors. Emma Kelly
"The acquisition of Tiger Australia and
Skywest provides Virgin Australia
with a strong presence in the budget,
FIFO and regional markets." -- Virgin
Australia CEO John Borghetti
The acquisitions will make Virgin Australia
a stronger competitor, says Borghetti.
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