Virgin has won regulatory approval to take control of Tiger Airways, giving the airline a huge boost in its ongoing war with Qantas Airways (ASX: QAN).
In a statement released today, the Australian Competition and Consumer Commission (ACCC) has announced that it will not oppose the proposed acquisition by Virgin Australia Holdings (ASX: VAH) of 60% of Tiger Airways Australia.
"The ACCC's view is that this acquisition is unlikely to lead to a substantial lessening of competition in the Australian market for domestic air passenger transport services," ACCC Chairman Rod Sims said.
The ACCC noted that Tiger Australia was unlikely to remain in the local market place if the proposed acquisition didn't proceed. Tiger has had a history of poor financial and operational performance, never making a profit in the six years it has operated in Australia.
The ACCC also looked at other options for Tiger Australia, including potential improvement by its current owner, Singapore-based Tiger Airways Holdings, or other potential shareholders or joint venture partners. Under those scenarios, the ACCC concluded that Tiger's performance was unlikely to be turned around, and remain an independent airline.
"Virgin Australia now has the opportunity to pursue its stated objective of transforming Tiger Australia into an effective competitor to Jetstar for price sensitive travellers," the ACCC said. In more good news for Virgin, the ACCC has not imposed any conditions of its approval.
Virgin has outlined a multi-faceted approach to competing with Qantas domestically. As the Virgin brand moved upstream to compete with Qantas, including an attack on Qantas' dominance in the premium business market, the airline wanted a way to compete with Jetstar at the budget end, and in regional areas against QantasLink. With the acquisition of Skywest Airlines earlier this year, and now approval to control Tiger, Virgin appears to have all its pieces where it wants them.
Foolish takeaway
Both Virgin and Qantas have underperformed the S&P / ASX 200 index (Index: ^AXJO) (ASX: XJO) over the past year. The ACCC's approval has now given Virgin the ammunition to take the game to Qantas, but whether it will be good news for shareholders remains to be seen.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.
