Virgin’s Tiger Air Deal Could Contain Antitrust Implications, Says Regulator

Northern, WI 02/07/2013 (wallstreetpr) – Advancing with a strategy of expansion in the Australian Sky and capture more market share in 2013, Virgin Australia Holdings Ltd. (ASX:VAH), Australia`s second largest carrier is moving further to acquire Tiger Airways Holdings Ltd. (SGX:J7X) `s domestic unit , a third rank company.

Finalizing this deal will allow Virgin to make a duopoly market in Australia, said by Australian Competition & Consumer Commission. Moving towards with the belief that deal will enhance competition, native company is preparing for a reply for Consumer Commission.

Virgin Australia Holdings Ltd. (ASX: VAH) `s Corporate goal includes its growth`s plan for penetrating Quantas Airways Limited (ASX: QUAN)’s 65 % control in the domestic aviation market & hence, planning for 2nd turnover of Tiger Airways Holdings Ltd. (SGX:J7X). One of the takeover conditions fixed by the regulator is analyzing Tiger`s view of closing the deal or enhancing Carrier`s capacity up to 35.

John O` Shea, a market analyst reviewing the pros & cons of such deal expressed his opinion in replying to people`s questionnaire that although going with merger strategy is the company’s priority, if it is unsuccessful, they will focus on its core competencies & activities, thereby engaging with more profitable operations & non local passengers.

Giving a green signal or red towards deal is in the hands of regulators, which is waiting for a reply from the company for seeking a final ruling on march 14th. Tiger Airways Holdings Ltd. (SGX:J7X), a Singapore based company, on the other side, backed such deal for selling its 60 % holding for $36 million in the Australian domestic market.

Investors replied negatively for Virgin Australia Holdings Ltd. (ASX:VAH) `s strategy giving a downside to its shares. Its last close was AUD 0.45 dropping to AUD 0.435; a highest fall since Nov 21. Overview of past year gives a good news that with the last close price of 45. The company  had gained 27 % against the benchmark of 15 % established by S & P / ASX 200 index.

Moving further, the company’s share is also not comfortable with the company`s announcement of a simultaneous bid for a domestic carrier, SkyWest Airlines Ltd. (LON:SKYW) together with going for 10 % stake in Singapore Airlines Ltd. (SGX:C6L). Last week, Regulator had passed domestic SkyWest deal of A$96 million against Shares & Cash consideration.

Matthew Spence, an analyst from American banking industry, in his note to clients said that acquisition attracts more eyes for scrutiny of virgin`s operations. Consumer Commission showed its opinion regarding alertness on such deal for maintaining competition in markets without causing harm to customers. Chairman Rod Sims, expressed his views in the interview that Tiger is supporting competition & discipline for market, so Tiger’s ousting away from the competition is ought to bring a little bit of anarchy.

To enhance profitability from operations, companies must see to it that the capacity expansion follows behind the rise in demand thus creating an artificial backlog. The biggest risk in that strategy is a fierce price wars. Such retaliations initiated by a direct competitor in order to capture a larger market can force a financially feeble company out of market.

According to estimates by various analysts from famed securities trading firms including UBS AG (USA) (NYSE:UBS) & Merrill Lynch, the  is that three current competitors (Quantas, Virgin & Tiger) will soon reduce ticket prices by 1 % within 6 months through December for maximizing its efforts to capture market share.

The shares of Virgin Australia Holdings Ltd. (ASX:VAH) were down by 3.33% and currently trading at AUD 0.435.

The shares of SkyWest Airlines Ltd. (LON:SKYW) were down by 0.69% and currently trading at GBX28.80.

UBS AG (USA) (NYSE:UBS) shares were down by 2.89% and currently trading at $16.78.

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Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.