In a stunning series of moves announced today, Virgin Australia has bought 60% of low cost carrier Tiger Airways Australia for $35 million, agreed to acquire Skywest Airlines and brought Singapore Airlines on board as a 10% shareholder through a share placement that will raise $105 million. In terms of analysis, it’s hard to know where to start.
Singapore Airlines, which has long lusted after the Australian market and owns Tiger Australia’s parent company, is very much part of what’s just happened and are clearly a driving strategic force. The two deals in which Singapore is directly involved consolidates its presence in the Australian market and allows it enormous scope to grow.
As for Virgin, they have another powerful ally with skin in the game as Singapore joins Etihad and Air New Zealand with equity in the carrier.
The Tiger acquisition also allows Virgin to better differentiate its products. No doubt it will use Tiger to take on Jetstar while Virgin Australia will continue its move upmarket in a bid to snare increased business traffic from Qantas. Today’s release said Tiger Airways and Virgin will invest a further $62.5 million in the business and have the capabiloity of increasing its fleet from 11 to 35 aircraft by 2018.
Finally Skywest gives Virgin access to the lucrative mining markets of Western Australia. It has a very strong charter business, flies 800,000 passengers each year and its fleet includes 20 aircraft, including Airbus A320s, Fokker F100s and Fokker F50s.