VA invests in Tiger, buys Skywest, SQ investment & ACCC Concerns

[amaroo]

Everyone has to have a point where they stop throwing good money after bad.

Nothing stopping VA starting from scratch! Given the amount of foreign Government ownership (different to foreign ownership) of VA - they bloody well should.

 

[amaroo]

Losing $4m a month with no sign of a turnaround? I'll bet London to a brick that they do.

So how does VA buying it = better or same level of competition?

 

[777]

So how does VA buying it = better or same level of competition?

Tiger continues to exist. Would have thought that was obvious.

 

[amaroo]

Tiger continues to exist. Would have thought that was obvious.

Good try....however, does "continues to exist" really = better or same level of competition?

 

[serfty]

Domestically, TT under the VA banner would do the loss leaders and compete with JQ, leaving VA to compete with QF

 

[oz_mark]

I guess for SIA that point has come because they finally have a stake that works (VA) so they no longer need Tiger? At least in Australia.

I've heard mention of them having thoughts about TR's future as well.

 

[777]

Good try....however, does "continues to exist" really = better or same level of competition?

Better than there not being a competitor to JQ on price at the low end? Obviously.

Are you comparing it to the status quo where the owners of tiger spend millions of dollars a month effectively subsidizing it or are an actual reasonable future prospect?

Fwiw I actually think the best thing for virgin (and QF) is to let tiger disappear. But Singapore are spending a lot of money to get virgin to take this problem off their hands.

 

[samh004]

Better than there not being a competitor to JQ on price at the low end? Obviously.

Are you comparing it to the status quo where the owners of tiger spend millions of dollars a month effectively subsidizing it or are an actual reasonable future prospect?

Fwiw I actually think the best thing for virgin (and QF) is to let tiger disappear. But Singapore are spending a lot of money to get virgin to take this problem off their hands.

If they're losing so much now, I can only see them claw it back by increasing fares, and we'd have to see where that left them.

They are too cheap right now though, that much is obvious.

 

[amaroo]

Fwiw I actually think the best thing for virgin (and QF) is to let tiger disappear.

If I was a VA frequent flyer...I'd certainly wouldn't be happy about it either.

Tiger will be to VA what J* is to QF.....the cancer will take over.

Singapore are spending a lot of money to get virgin to take this problem off their hands.

Thats the issue.

Singapore Government has a dud investment. The Australian airline traveller shouldn't have the antidote forced down their throat.

 

[anat0l]

If I was a VA frequent flyer...I'd certainly wouldn't be happy about it either.

Tiger will be to VA what J* is to QF.....the cancer will take over.

Don't think it'll come to that. I thought JB's objective of taking the reins at VA was to show that QF was wrong and antiquated, and thus having the opportunity to mold a young and agile airline into something which most people would respect is an airline that Australians can be truly proud of.

OK enough brown nosing talk......

Thats the issue.

Singapore Government has a dud investment. The Australian airline traveller shouldn't have the antidote forced down their throat.

Suppose they can't just fold it up, yeah? Would be quite a loss of face to the Singaporean government, which is known to be quite entrepreneurial, and successful at that.


To be honest, people want more competition, does that mean more options or lower fares? I thought that the latter is not really possible unless Ryanair comes to Australia (correction: Ryanair Australia, incorporated in Malaysia or Thailand, with wages to suit). But, isn't that Jetstar already?

 

[dk4]

Better than there not being a competitor to JQ on price at the low end? Obviously.

I don't think that it is that obvious - without Tiger, I think that while we might agree that Jetstar would become a little piggy and raise its prices considerably. The important aspect is that this would help to stimulate interest in a "real" third entrant coming to the AU market.

Domestically, TT under the VA banner would do the loss leaders and compete with JQ, leaving VA to compete with QF

I think that if an airline group duopoly was allowed to form at both ends of the market, the only time we would see substantial discounting is if a third player attempted to enter the market, when QF & VA would use JQ & TT respectively to drive them out. (With the "full service" brands sustaining group revenues, while the "LCC" brands enter into a blood bath until the third player quits.)

If VA didn't have TT, and a third player entered, QF would attempt to use JQ to compete, but VA would have to use VA, and once VA starts discounting (now as a "full service" player) QF would be forced to follow suit, which means that neither group could sustain such a strategy for a prolonged period, giving a third player (with a well thought out, Aussie appropriate market plan) a hope of gaining a toe hold (as a niche player).

I agree with the sentiment however, that if VA wants a second brand, it should be free to develop and deploy it inhouse.

IMO VA & QF cornering both ends of the market, with a dual brand strategy, will simple mean they have created a situation where we have a market where the barriers to entry are so high, no third player will try. And as a result, we can expect high ticket prices to be the norm.

 

[777]

The important aspect is that this would help to stimulate interest in a "real" third entrant coming to the AU market.

I would think the *failure* of Tiger to be anything but a sinkhole for large amounts of cash, following on from the failure of Air Australia, Impulse, OzJet and all the others is likely to deter anyone from setting up a third entrant any time soon.

FWIW i think it will be better for competition if Tiger survives because i don't see anyone willing to take on that investment any time soon. However, as someone who started flying VA because QF "Jetstarised" the route i flew most (MEL-NTL at the time), i am concerned about the pattern repeating at VA. (Having said that, if the standards improve a bit and they let me have lounge access when i do so and i'd probably start flying Tiger a bit).

If Tiger disappears, the simple loss of the capacity from the market (not to mention their brutally cheap fares) will mean ticket prices will rise. Perhaps, maybe, at some point 5 or ten years from now they will rise so much that someone will see an opportunity and re-enter the market but it's so far over the horizon it's irrelevant to me.

 

[eastwest101]

Both dk4 and 777 have some very good comments about the dynamics of competition in the Australian market. Competition and fares are usually inversely related to capacity, ie: too much capacity = lower fares as airlines compete to fill seats, not enough capacity = high fares ie: the "cheaper to fly to Singapore than Mt Isa problem". As well as sheer overall capacity in the whole market - its usually a case of mis-allocated capacity that results in low fares and airlines losing money. For instance - how many airlines fly the Coolongatta-Sydney route? And how many airlines fly Karratha-Sydney? One look at the airfares would let you know....

For any theoretical new competitor to enter the market and succeed - you basically have to go in with so much capacity and so many routes that your competitors can't introduce predatory pricing i.e. Qantas killing you with JQ or by raising fares on routes without competition to fund the discounted seats in order to put your competitor out of business. Its a perennial point of contention that the ACCC has to deal with - in a semi de-regulated environment (like airlines) then no competition is good for shareholders but not customers, some competition is good for customers and maybe shareholders, and too much competition is great for customers but sad times for shareholders.

I think TT had the right idea in product and fleet size right up to the point of filming the Airline reality TV show on Ch7 where they were presented with a PR disaster of their own making, then fares and revenue fell further, and then they were grounded by CASA for safety breaches. After that the Tiger business was essentially worthless from a public trust and customer brand value. After the grounding TT management have done as well as they can given the huge handicap they were given, but the airline should have been completely re-launched then and there with updated name, paint, staff, routes etc and given enough capital and capacity to withstand an onslaught from JQ. The brand was worthless so I don't know why they kept it except for administrative convenience, so while the Tiger brand was and maybe is almost worthless - the business itself was based on sound economic principles due to low costs of staff, relitively efficient aircraft (owned or leased I am not sure) and a revenue model based on some sort of low cost market demand.

I can only conclude that maybe owners of Tiger don't actually mind losing money , maybe they consider it as part of the big picture , by flying $9 fares to OOL or CFS then that just means that JQ has to match them or at least stay in the ball park, which means that this keeps JQ honest, which of course, despite how creative the QF accountants would like to be - must be reflected in the QF Group bottom line...... you would have to think the cost base for TT would be similar to JQd. Who knows. :shock:

I can assure you all of one thing though - if TT did dissapear tomorrow, then you could bet that all QF/VA & JQd airfares would also rise, more routes would be Jetstarized by QF and VA would have a more difficult life. But only up to a point where a lack of competition could entice a new entrant.

 

[samh004]

I can only conclude that maybe owners of Tiger don't actually mind losing money , maybe they consider it as part of the big picture , by flying $9 fares to OOL or CFS then that just means that JQ has to match them or at least stay in the ball park, which means that this keeps JQ honest, which of course, despite how creative the QF accountants would like to be - must be reflected in the QF Group bottom line...... you would have to think the cost base for TT would be similar to JQd. Who knows. :shock:

I'm not sure why JQ couldn't set their own fares, leaving Tiger to feed at the bottom. Surely the reverse would be true, with Tiger raising their prices a little to match and perhaps over time, airfares rising and businesses all around being happier overall. Competition still there, but with everyone making a profit, who the hell cares about the bottom of the market? Just have to hope a new entity doesn't come in and drag everyone back down again

I can assure you all of one thing though - if TT did dissapear tomorrow, then you could bet that all QF/VA & JQd airfares would also rise, more routes would be Jetstarized by QF and VA would have a more difficult life. But only up to a point where a lack of competition could entice a new entrant.

But how would you be able to tell the difference between what was planned anyway, and what is a new idea benefitting from the demise?

 

[eastwest101]

But how would you be able to tell the difference between what was planned anyway, and what is a new idea benefitting from the demise?

Very good question, I assume you were specific about the JQization of Australian routes? With Qantas' track record of delivery I would pretty much predict the opposite of whatever their press releases and plans currently say, or at least 5 years too late.

But of course airlines react do to their competitors (or lack of) so its all part of the mix that is a competetive market....

Lets say for a second that TT didn't exist (its a silly assumption I know), do you think that airfares would fall or rise? Or even further if DJ and VA didn't exist at all, ever, do you think that Qantas would have bothered starting JQ up?

Or put another way - how do you tell at the moment that QFi is losing money and that JQd and JQi are making money?

Anyway - its all tied up in history and we can all see the consequences of decicions made earlier like privatization of QF, merging with TAA or demise of Ansett etc etc.

The fact is now that we have a major group with the QF/JQ combination, one competitor whom are doing alright but are wanting to own a portion of another unsuccessful competitor (TT). I think its all a matter of consolidation, and if the ACCC blocks or puts onerous conditions on the VA/TT takeover then there is nothing the ACCC can do to stop the owners of TT from closing the airline down. I don't envy being in the ACCC's position.

The last time we had interference in airline ownership was the blocking of SQ from owning Ansett and look at what that eventually led to.... not a good competetive outcome IMHO.

 

[markis10]

I would think the *failure* of Tiger to be anything but a sinkhole for large amounts of cash, following on from the failure of Air Australia, Impulse, OzJet and all the others is likely to deter anyone from setting up a third entrant any time soon.

That comment is a little bit ignorant of history, in respect that Air Australia and OzJet never made a profit when they changed from being a successful charter company to an RPT operation, while Impulse was a successful airline for 11 years. Lets not forget Virgin where the third airline for many years as well, and we have other airlines operating quite well with larger fleets such as Skytrans and Rex, the key being they don't operate on trunk routes!

There is every reason for Tiger to do well if they pick their battles, with better management I expect they will.

 

[amaroo]

Or even further if DJ and VA didn't exist at all, ever, do you think that Qantas would have bothered starting JQ up?

I always assumed they started J* so that they could employ crew/staff/workers at a cheaper rate.

 

[TiredOldFlyer]

If Virgin want to buy Tiger so be it !
If they see a commercial advantage and are prepared to put up the money thats their decision.
I have trouble understanding why the ACCC should be involved when they allow the likes of the two
major food retailers do control their market.
However I am cranky tonight and perhaps on the wrong track

 

[MarkD]

Maybe Virgin can use Tigers Reservation System, apparantly TTs actually works LOL

 

[markis10]

Maybe Virgin can use Tigers Reservation System, apparantly TTs actually works LOL

Umm, that's somewhat of a cheap shot that shows an ignorance of history, considering OpenSkies is what Virgin are moving from because of its failures :shock:.

http://www.theage.com.au/travel/tra...ormal-after-checkin-crash-20121110-294dr.html