Virgin's joint venture deal with Delta has upset Tiger
Steve Creedy, Aviation writer | July 17, 2009
Article from: The Australian
THE proposed joint venture between Virgin Blue and Delta Air Lines hit its first hurdle this week with Tiger Airways vowing to lodge an objection to the deal with Australia's competition regulator.
Although the Singapore-based carrier does not compete across the Pacific, Tiger chief executive Tony Davis said the airline objected to the anti-competitive nature of the tie-up. A major shareholder in Tiger, Singapore Airlines, also has a long-standing interest in the Pacific route, although its enthusiasm has diminished since the number of competitors flying non-stop between Australia and the US mainland doubled.
Mr Davis said that Tiger was opposing the application because it believed airlines should be willing and able to compete on international routes without seeking to collude and forcing fares up.
He said Tiger believed this was how consumers received the best prices and product.
He also noted the timing of the deal as ironic given that Virgin Atlantic had been guilty of price-fixing with British Airways, and Qantas had pleaded guilty in Canada to being part of a freight cartel. "The other irony, of course, is that airlines like Tiger in Australia are prohibited from even trying to compete on these routes because of the restriction on us operating internationally at the moment," he said.
"So ... we think it's a bit rich that those who are given the ability to compete then run off to the competition authorities saying we can only do it if you let us collude with our competitor."
Virgin Blue's V Australia unit has been bleeding money on the US route and Virgin announced last week that it would seek anti-trust immunity to enter into a joint venture with Delta, which began daily services between Sydney and Los Angeles earlier this month.
Under the deal, the airlines would share reservations codes, pool revenue, collaborate on route and product planning, as well as use each other's planes to fly passengers on the most efficient and direct route.
Analysts have applauded the move, saying it would help stem
V Australia's losses and make it an increasingly viable competitor for high-yield corporate accounts.
They do not believe anti-trust immunity, which needs to be obtained in Australia and the US, will be a problem but estimates of how long it will take vary from six months to more than a year.
However, Tiger is unlikely to be the only airline to object to the proposal: United Airlines is also seen as a strong possibility, although it has yet to tip its hand, and Air New Zealand is likely to be another.
The joint venture comes as speculation ramped up this week that Virgin was seeking a cash injection.
The group did little to dampen that speculation when it requested a trading halt on Monday in response to media speculation it would this week announce a $400 million capital raising.
It subsequently released a carefully worded statement to the ASX refuting the details of the report in The Sydney Morning Herald, but stopped short of denying it was looking for cash.
Some analysts have also speculated that Virgin could seek a deal with Air New Zealand, but many industry observers disagree. The Australian understands there have been no talks between the two.
At least one analyst believes there is no immediate need for a capital raising. "While VBA would like a larger cash balance and we expect it to continue to burn cash over the next six months, we don't believe there is any need to raise new cash as VBA is releasing it through asset sales and the rate of cash burn is declining," Merrill Lynch's Kevin O'Connor said in a note.
Meanwhile, Tiger itself has also become the subject of speculation, with financial sources suggesting the airline is on the prowl for cash to build up its Australian operations.
Tiger is understood to be offering a significant equity in its Australian operations and is believed to have approached several companies in Australia and New Zealand.
There are also rumours that Singapore Airlines, which has been hard hit by the financial crisis, has become less enthusiastic about its investment in the airline.
Singapore's problems were underscored yesterday by June statistics, which showed passenger numbers down 19.2 per cent as passenger loads fell 3.5 percentage points to 75.7 per cent.
Hard to see it getting knocked back when QF have AA and BA but you never know. If SIA want to get in on the route the only way looks like buying a stake in DJ to go with their stake in VS. Mind you any money they had for this they have probably spent on Tigger.