The announcements yesterday (Oct 30) came as Singapore Airlines became the latest foreign carrier to take a stake in Virgin Australia, with SQ receiving 10 per cent of Virgin Australia Holdings for an investment of AUD$105 million.
While Singapore Airlines’ share allocation has received approval under the the Australian Government’s Foreign Investment Policy, the Skywest and Tiger Australia purchases require approval from the Australian Competition and Consumer Commission (ACCC).
Virgin Australia Chief Executive Officer John Borghetti said the three transactions were made to accelerate the growth of the business, diversify its earnings and increase competition in Australia.
“The transactions announced today are in line with Virgin Australia’s strategy to become the airline of choice in all markets, in order to diversify our earnings and drive growth opportunities for the business,” he said.
“The acquisition of Tiger Australia and Skywest provides Virgin Australia with a strong presence in the budget, Fly-in Fly-Out (FIFO) and regional markets, enabling us to fast-track our expansion in these areas and become a stronger competitor.
“These transactions will bring important benefits to Australia, driving growth in jobs, tourism and competition,” Borghetti said.
Virgin Australia already has a significant partnership with Skywest on a number of levels, including the operation of Virgin’s ATR-72 aircraft by the Perth-based airline, as well as codesharing and reciprocal frequent flyer benefits.
The addition of Skywest will provide Virgin with an enhanced regional network, particularly in Western Australia, while the purchase of 60 per cent of Tiger Airways will give Virgin Australia an airline to compete against Qantas-owned Jetstar in the low-cost segment.
“We launched a regional network partnership with Skywest in October 2011 and now we will be able to realise the full potential of the operation through developing a more integrated network, service and frequent flyer program,” Borghetti said.
“Under the agreement, Skywest would become part of the Virgin Australia brand but will continue to operate under its current Air Operator’s Certificate (AOC) with its own CEO and management team, based in Western Australia.
“Importantly, we will invest to support the growth of Skywest, which will benefit jobs, business and tourism, particularly in Western Australia and throughout regional Australia,” he said.
Tiger Airways Holdings is 32 per cent owned by Singapore Airlines and company sold a 60 per cent share in the Australian operation to Virgin Australia for AUD$35 million. As part of deal, Tiger Airways and Virgin have agreed to invest up to AUD$62.5 million over the next five years, including increasing the size of the fleet from 11 to 35 aircraft by 2018.
“This transaction enables Virgin Australia to access the budget market and enables Tiger Australia to expedite its growth, providing greater competition to this important market segment,” Borghetti said.
“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, and we look forward to collaborating with Tiger Airways as the business grows,” Borghetti said.
While Tiger Airways will continue to operate under its existing brand, Skywest will be re-branded under Virgin Australia.
If the transactions are approved, the Virgin Australia Group will grow to 139 aircraft (from 109 now) and to over 9000 employees.