Read Sandilands
Read Ben Sandilands' take on it. It seems there are two main drivers for this:
1) They no longer need to run two back-office operations to keep their accounts separate, potentially saving a few million.
2) Tiger then becomes an "Australian flag carrier" and is thus able to venture further afield. Apparently New Zealand and the Pacific Islands among others are very price-sensitive and would welcome the Tiger offering.
I've flown Tiger. It's like a Sydney bus: not very comfortable, but it gets you there. For short flights, why would you pay more?
I felt sorry for the poor sods trundling onto a Tiger flight in Cairns for a non-stop to Perth. But Sydney to Melbourne, why not?