VIRGIN BUYS INTO TIGER AND SKYWEST

VIRGIN BUYS INTO TIGER AND SKYWEST

VIRGIN Australia Holdings (VAH) has upped the pressure on rival airline Qantas by taking majority ownership of Tiger Australia and agreeing to purchase Skywest (SXR).

Virgin overtook Qantas in August as Australia’s top airline thanks to a $22.8 million net profit after tax for the 2012 financial year, compared to the $244 million net loss posted by the Flying Kangaroo.

The latest move by Virgin, which comes shortly after Qantas resumed flights into the Gold Coast, indicates the fierce battle between the two will continue into next year.

The 60 per cent purchase of Singapore Airlines-owned Tiger Australia, worth $35 million, will allow Virgin Australia to compete with Qantas’ Jetstar in the low-cost category, while competing head-to-head with QantasLink in the regional market with Skywest.

Meanwhile, Singapore Airlines has taken a 10 per cent stake in Virgin Australia Holdings, worth about $100 million, with anti-dilution rights to maintain that interest.

Tiger Airways Holdings and Virgin Australia Holdings will pump $65.5 million into Tiger Australia as part of the joint venture. It plans to expand the Tiger fleet of A320s from 11 up to 35 aircraft by 2018.

Tiger Australia will pay a further $5 million to Tiger Airways Holdings should the airline achieve performance benchmarks.

“This transaction enables Virgin Australia to access the budget market and enables Tiger Australia to expedite its growth, providing greater competition to this important market segment,” says Virgin Australia CEO John Borghetti (pictured).

The 10 per cent sale of Virgin Australia Holdings to Singapore Airlines has been approved by the Australian Government. The deals with Skywest and Tiger Airways Holdings must be approved by regulatory bodies in both Singapore and Australia.

The Skywest deal, proposed to be $0.45 per share, with $0.225 per share paid in cash, plus $0.53 new Virgin Australia Holdings shares per Skywest share, must also be approved by shareholders.

“If approved, this transaction (Skywest) will enable us to fast-track our advancement in the high growth fly-in, fly-out and regional markets, increasing competition in these important segments,” says Borghetti.

Virgin Australia and Singapore Airlines previously entered a code sharing agreement in June last year, while Virgin Australia and Skywest launched a regional network partnership in October 2011.

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