QANTAS chief executive Alan Joyce has dismissed concerns about an emboldened competitor following Virgin Australia’s move to take control of Tiger Australia and regional airline Skywest.
Speaking a day after Virgin sought to widen its reach, Mr Joyce said Qantas was ”in the best position in all segments that it operates in” regardless of the competition from its rival.
”We’re going to be very competitive, no matter what happens [to the competitive environment],” he told a tourism forum in Canberra. ”I’d rather have the best business airline in the country; I’d rather have the best low-cost carrier in the country; I’d rather have the best regional carrier in the country.”
Virgin’s advances on Tiger and Skywest will require approval from the competition regulator, which has expressed concerns about the creation of a duopoly in the domestic market.
Merrill Lynch analysts said they did not expect an immediate response from Qantas, but the key risk for the incumbent was a quick boost in the size of Tiger’s fleet. ”If Tiger proceeds with expanding its fleet, we expect Qantas will respond by adding capacity to defend its 65 per cent market share,” they said.
Virgin has proposed lifting Tiger’s fleet from 11 aircraft to 35 within the next five years, which could up the budget airline’s share of the domestic market to 10 per cent. A larger Tiger threatens to lower returns for Qantas and budget offshoot Jetstar, as they will be forced to respond to retain market dominance.
Macquarie Equities analysts said Virgin’s plans to buy a 60 per cent stake in Tiger would give it an ”additional lever to tackle Qantas at both ends of the market with a lower cost base in each”. But the analysts said investors’ main concern for Virgin would be the time it would take to turn around Tiger, which has only made a profit once in the past 10 quarters.
”Strategically the acquisitions … improve Virgin’s domestic platform, providing it with a comprehensive product portfolio,” they said. ”However, turning around Tiger will be a significant task.”
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