Virgin takes full control of Tigerair
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Virgin takes full control of Tigerair
Virgin Australia is cementing its grip on loss-making budget carrier Tigerair Australia, buying the 40 per cent stake it doesn't already own for $1.
The purchase from Singapore-listed Tiger Holdings - announced as Virgin reported a $45 million first-quarter pre-tax underlying loss - will give Virgin full control of the airline and brand rights to fly Tigerair to a number of short-haul international destinations.
The $1 price for 40 per cent is a far cry from the $35 million Virgin paid for its existing 60 per cent stake in the budget carrier last year.
However, Virgin will now have to take on the full share of Tigerair's losses, which rose in the first quarter relative to the prior year.
Virgin chief executive John Borghetti said that as consumer demand in the Australian domestic market continued to be subdued, the Tigerair domestic fleet was likely to be reduced. "Under this proposed transaction, we will benefit from the economies of scale and achieve profitability ahead of schedule by the end of 2016, by leveraging the resources of the wider Virgin Australia Group," he said.
Virgin said its first-quarter underlying loss represented an 18.3 per cent improvement over the prior corresponding period, with the first quarter being traditionally a weak business period. Last year, Virgin reported a $49 million underlying pre-tax loss in the first quarter, implying the second quarter was profitable.
The latest result excluded $11.6 million of quarterly pre-tax losses from Tigerair, up from $9.7 million last year due to ongoing subdued consumer sentiment.
The Virgin figures compare with Qantas' forecast of a pre-tax underlying profit in the first half of the financial year.
Virgin chief financial officer Sankar Narayan said that while the leisure market remained subdued, the airline had delivered further growth in the corporate and government segment and made good progress in containing costs. Overall, revenue rose by 1.3 per cent but continued weakness in leisure demand resulted in yields, or returns on fares, remaining in line with last year. Costs rose by less than 1 per cent in the first quarter.
Mr Narayan said that at the end of September, forward booking revenues for Virgin were up 3 per cent relative to the same time last year.
Overall, Virgin increased its domestic capacity by 0.5 per cent in the first quarter, with its load factor, or percentage of seats filled, falling by 1 percentage point to 77.2 per cent. Tigerair increased its capacity by 9 per cent from last year and its load factor increased by 0.5 percentage points to 90.2 per cent in the first quarter.
Mr Borghetti did not say whether Tigerair would replace Virgin on flights to international leisure destinations such as Bali, Phuket, Fiji and New Zealand as part of the Virgin acquisition. Virgin last year reported a loss from its international operations.
The Bali route in particular is becoming more competitive, with Indonesia AirAsia X poised to launch flights from Melbourne and Sydney to Bali by the end of the year.
Virgin, which last year reported a $46.1 million loss from its current 60 per cent stake in Tigerair, expects the deal will be completed by the end of the year.
Mr Borghetti last month told Fairfax Media that Virgin planned to slow the growth of Tigerair relative to its initial plans.
On Friday, he emphasised Virgin remained committed to maintaining Tigerair's low-cost business model and separate brand to ensure it could deliver the most competitive pricing in Australian budget travel.
Tiger Holdings is part-owned by Singapore Airlines, which is one of the largest shareholders in Virgin.
Read more: Virgin takes full control of Tigerair
The purchase from Singapore-listed Tiger Holdings - announced as Virgin reported a $45 million first-quarter pre-tax underlying loss - will give Virgin full control of the airline and brand rights to fly Tigerair to a number of short-haul international destinations.
The $1 price for 40 per cent is a far cry from the $35 million Virgin paid for its existing 60 per cent stake in the budget carrier last year.
However, Virgin will now have to take on the full share of Tigerair's losses, which rose in the first quarter relative to the prior year.
Virgin chief executive John Borghetti said that as consumer demand in the Australian domestic market continued to be subdued, the Tigerair domestic fleet was likely to be reduced. "Under this proposed transaction, we will benefit from the economies of scale and achieve profitability ahead of schedule by the end of 2016, by leveraging the resources of the wider Virgin Australia Group," he said.
Virgin said its first-quarter underlying loss represented an 18.3 per cent improvement over the prior corresponding period, with the first quarter being traditionally a weak business period. Last year, Virgin reported a $49 million underlying pre-tax loss in the first quarter, implying the second quarter was profitable.
The latest result excluded $11.6 million of quarterly pre-tax losses from Tigerair, up from $9.7 million last year due to ongoing subdued consumer sentiment.
The Virgin figures compare with Qantas' forecast of a pre-tax underlying profit in the first half of the financial year.
Virgin chief financial officer Sankar Narayan said that while the leisure market remained subdued, the airline had delivered further growth in the corporate and government segment and made good progress in containing costs. Overall, revenue rose by 1.3 per cent but continued weakness in leisure demand resulted in yields, or returns on fares, remaining in line with last year. Costs rose by less than 1 per cent in the first quarter.
Mr Narayan said that at the end of September, forward booking revenues for Virgin were up 3 per cent relative to the same time last year.
Overall, Virgin increased its domestic capacity by 0.5 per cent in the first quarter, with its load factor, or percentage of seats filled, falling by 1 percentage point to 77.2 per cent. Tigerair increased its capacity by 9 per cent from last year and its load factor increased by 0.5 percentage points to 90.2 per cent in the first quarter.
Mr Borghetti did not say whether Tigerair would replace Virgin on flights to international leisure destinations such as Bali, Phuket, Fiji and New Zealand as part of the Virgin acquisition. Virgin last year reported a loss from its international operations.
The Bali route in particular is becoming more competitive, with Indonesia AirAsia X poised to launch flights from Melbourne and Sydney to Bali by the end of the year.
Virgin, which last year reported a $46.1 million loss from its current 60 per cent stake in Tigerair, expects the deal will be completed by the end of the year.
Mr Borghetti last month told Fairfax Media that Virgin planned to slow the growth of Tigerair relative to its initial plans.
On Friday, he emphasised Virgin remained committed to maintaining Tigerair's low-cost business model and separate brand to ensure it could deliver the most competitive pricing in Australian budget travel.
Tiger Holdings is part-owned by Singapore Airlines, which is one of the largest shareholders in Virgin.
Read more: Virgin takes full control of Tigerair
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?
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?
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With Jetstar retracting their preferential gates at SYD (saving $6m and APPARENTLY increasing the amount of command's in Sydney with no increase in aircraft numbers ... JQ pilots will know what saying..) Tiger are making their presence known. Where is Jetstar's big banner in T2?
Buying Tiger is win win for Virgin. Will the use the A320 to combat Jetstar 'a expansion into the mining sector?
Buying Tiger is win win for Virgin. Will the use the A320 to combat Jetstar 'a expansion into the mining sector?
SIA just announced a full takeover of Tiger Airways Holdings by itself.
Not sure tiger is an Australian controlled airline even after the sale. Not sure what entity has bought the shares but there was a reason for the split virgin had given the shareholders.
Lucky Virgin, they now get 100% of Tigers losses 
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angry rat
maybe you are half right and half wrong.
He learned the good stuff: JQ/Tiger = how to undermine QF/VB respectively
But while they fight the 'ego contest' of who controls the domestic market, the winners will be - JB/AJ and budget travelers - the losers will be regular/business travelers and tech crew of VA/QF and of course the shareholders. JB earns more than most successful airline CEOs earn whilst he manages to turn a LCC into a loser!
But that is why they say we are 'down under' - our maths is different. Destroying Enterprise Value is obviously a positive in the BNE boardroom of VA!
Hope you don't mind a HK centric commentary on an Aussie issue - but I have mates in VA so hard for me to ignore!
maybe you are half right and half wrong.
He learned the good stuff: JQ/Tiger = how to undermine QF/VB respectively
But while they fight the 'ego contest' of who controls the domestic market, the winners will be - JB/AJ and budget travelers - the losers will be regular/business travelers and tech crew of VA/QF and of course the shareholders. JB earns more than most successful airline CEOs earn whilst he manages to turn a LCC into a loser!
But that is why they say we are 'down under' - our maths is different. Destroying Enterprise Value is obviously a positive in the BNE boardroom of VA!
Hope you don't mind a HK centric commentary on an Aussie issue - but I have mates in VA so hard for me to ignore!
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Numero,
Yes, it's all very interesting isn't it?
I would have loved to have been a fly on the wall at the meetings preceding these decisions.
Nonetheless, I think a couple of our previous posters aren't too wide of the mark anyway.
We'll see.
Yes, it's all very interesting isn't it?
I would have loved to have been a fly on the wall at the meetings preceding these decisions.
Nonetheless, I think a couple of our previous posters aren't too wide of the mark anyway.
We'll see.
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quote
"Subdued leisure market with 90% loads? Seems pretty high ?
"
high load factors don't mean profit. Many loss leader seats sold to fill aircraft.
Better loosing a few dollars on a seat, rather than a lot of $$$.
John McG-don't think u have actually flown TT. If u had u would note SFA difference between TT, JQ, VA & QF domestically, except for maybe baggage claim areas & TT's aircraft are newer, MUCH newer.
Can see abandoned routes such as DUD/SYD & DUD/MEL (although DUD/AVV might be better) + Hamilton & Palmerston North, all on a low frequency basis, such as twice a week, with maybe back of clock services, although fitting in with SYD curfew (2230 out of SYD, means early arrival in NZL, but better than no flights at all !!!!!!!)
Some mid week Australia to ZQN flights maybe be given to TT also.
Fiji is a given + maybe NOU & some pacific islands.
The losers will be Virgin New Zealand.
TT flights Australia to Fiji will create a low cost way to LAX at least in peak season.
Pax might fly TT to NAN, then FJ NAN/LAX. There are some very cheap fares NAN/LAX/NAN but hard part for budget travellers is often getting to NAN cheaply + the increased Fiji departure tax of around AU$120 each, which for a Australia/Fiji return on TT + a NAN/LAX/NAN on FJ, will mean 2 x $120 for each person + possible stay in Fiji for 1/2 day in each direction minimum.
"Subdued leisure market with 90% loads? Seems pretty high ?
"high load factors don't mean profit. Many loss leader seats sold to fill aircraft.
Better loosing a few dollars on a seat, rather than a lot of $$$.
John McG-don't think u have actually flown TT. If u had u would note SFA difference between TT, JQ, VA & QF domestically, except for maybe baggage claim areas & TT's aircraft are newer, MUCH newer.
Can see abandoned routes such as DUD/SYD & DUD/MEL (although DUD/AVV might be better) + Hamilton & Palmerston North, all on a low frequency basis, such as twice a week, with maybe back of clock services, although fitting in with SYD curfew (2230 out of SYD, means early arrival in NZL, but better than no flights at all !!!!!!!)
Some mid week Australia to ZQN flights maybe be given to TT also.
Fiji is a given + maybe NOU & some pacific islands.
The losers will be Virgin New Zealand.
TT flights Australia to Fiji will create a low cost way to LAX at least in peak season.
Pax might fly TT to NAN, then FJ NAN/LAX. There are some very cheap fares NAN/LAX/NAN but hard part for budget travellers is often getting to NAN cheaply + the increased Fiji departure tax of around AU$120 each, which for a Australia/Fiji return on TT + a NAN/LAX/NAN on FJ, will mean 2 x $120 for each person + possible stay in Fiji for 1/2 day in each direction minimum.
Last edited by BNEA320; 17th Oct 2014 at 23:44.
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Fiji is a given + maybe NOU & some pacific islands
As for NOU, the reason Virgin don't fly there is the high landing charges (PB looked at it years ago & the landing charges made it unviable). And if costs prevent Virgin flying there, I don't think that Tiger will be going there any time soon.
As for Tonga, Samoa & Rarotonga, they might be able to offer a viable service to those destinations.
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Those routes were abandoned for a reason.
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quote
Quote:
Can see abandoned routes such as DUD/SYD & DUD/MEL (although DUD/AVV might be better) + Hamilton & Palmerston North, all on a low frequency basis, such as twice a week, with maybe back of clock services, although fitting in with SYD curfew (2230 out of SYD, means early arrival in NZL, but better than no flights at all !!!!!!!) Those routes were abandoned for a reason.
The Margin on the Tasman are already paper thin, with everyone relying on Alliances and connections to turn a profit. If there was money to made out of the larger regional cities, Virgin/Air NZ/Jetstar/Jetconnect... someone would (still) be flying them.
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which is why TT will do them & not VA/NZ.
Also look at routes like BNE/ZQN. VA/NZ do it nonstop up to 10 times a week & also year round (QF this year did it once a week for about 10 weeks only)
For those 3 days a week when 2 nonstop, who really want to depart on international 3 hour flight at 0500 ish, unless a very good reason to do so, such as $$$$.
When a family of 4, 5 or more people can save $100 or more each to fly that early they might, so why not have TT do it, with no business class, at much lower per seat costs.
Also to save $$$ some people will move their dates a few days.
Lastly, VA/NZ could put a majority of their frequent flyer seats on TT services. Those using ff pts/miles are used to compromise.
TT would be perfect for international services out of AVV.
Much cheaper car parking, cheaper fees for the airline.
Also look at Fiji.
VA currently has no opposition MEL/NAN/MEL during daylight hours. Only other MEL/NAN/MEL nonstop are FJ red eyes/evening flights, which don't connect with FJ to & from LAX. Similarly, VA does daily BNE/NAN/BNE in daylight hours. FJ only does 3 or 4 a week. The other FJ services are red eyes to NAN.
VA could therefore hand a few of their midweek flights to NAN from BNE &/or MEL to TT, or they can do what JQ are doing over Xmas holidays & run some flights back of clock.
VA will probably get much greater utilisation out of TT A320's, as they'll be able to offer flights west to PER which they already do & east to NZL & Fiji etc. which they don't do now.
Ask airports in NZL with no or stuff all service now from Australia, if they rather have red eye flights or no flights ?
Also ROT is losing their nonstop from Australia. Maybe they'd be better off with TT, than no flights at all.
From memory SYD/ROT was about twice a week.
The old Strategic/Air Australia route TSV/DPS which ran up to 3 times a week, could be reintroduced with TT operating it, as well as maybe TSV/AKL.
TSV people hate having to go to CNS or BNE to get anywhere international, as much as BNE people hate having to fly via Australia's worst airport, SYD.
Perhaps a TT, TSV/AKL could connect with NZ international services to LAX, SFO, YVR, RAR etc.
Quote:
Can see abandoned routes such as DUD/SYD & DUD/MEL (although DUD/AVV might be better) + Hamilton & Palmerston North, all on a low frequency basis, such as twice a week, with maybe back of clock services, although fitting in with SYD curfew (2230 out of SYD, means early arrival in NZL, but better than no flights at all !!!!!!!) Those routes were abandoned for a reason.
The Margin on the Tasman are already paper thin, with everyone relying on Alliances and connections to turn a profit. If there was money to made out of the larger regional cities, Virgin/Air NZ/Jetstar/Jetconnect... someone would (still) be flying them.
___________________________________________________________
which is why TT will do them & not VA/NZ.
Also look at routes like BNE/ZQN. VA/NZ do it nonstop up to 10 times a week & also year round (QF this year did it once a week for about 10 weeks only)
For those 3 days a week when 2 nonstop, who really want to depart on international 3 hour flight at 0500 ish, unless a very good reason to do so, such as $$$$.
When a family of 4, 5 or more people can save $100 or more each to fly that early they might, so why not have TT do it, with no business class, at much lower per seat costs.
Also to save $$$ some people will move their dates a few days.
Lastly, VA/NZ could put a majority of their frequent flyer seats on TT services. Those using ff pts/miles are used to compromise.
TT would be perfect for international services out of AVV.
Much cheaper car parking, cheaper fees for the airline.
Also look at Fiji.
VA currently has no opposition MEL/NAN/MEL during daylight hours. Only other MEL/NAN/MEL nonstop are FJ red eyes/evening flights, which don't connect with FJ to & from LAX. Similarly, VA does daily BNE/NAN/BNE in daylight hours. FJ only does 3 or 4 a week. The other FJ services are red eyes to NAN.
VA could therefore hand a few of their midweek flights to NAN from BNE &/or MEL to TT, or they can do what JQ are doing over Xmas holidays & run some flights back of clock.
VA will probably get much greater utilisation out of TT A320's, as they'll be able to offer flights west to PER which they already do & east to NZL & Fiji etc. which they don't do now.
Ask airports in NZL with no or stuff all service now from Australia, if they rather have red eye flights or no flights ?
Also ROT is losing their nonstop from Australia. Maybe they'd be better off with TT, than no flights at all.
From memory SYD/ROT was about twice a week.
The old Strategic/Air Australia route TSV/DPS which ran up to 3 times a week, could be reintroduced with TT operating it, as well as maybe TSV/AKL.
TSV people hate having to go to CNS or BNE to get anywhere international, as much as BNE people hate having to fly via Australia's worst airport, SYD.
Perhaps a TT, TSV/AKL could connect with NZ international services to LAX, SFO, YVR, RAR etc.
Last edited by BNEA320; 18th Oct 2014 at 05:18.
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As for Tonga, Samoa & Rarotonga, they might be able to offer a viable service to those destinations.