Virgin Australia has moved swiftly to slap down speculation that it may close its loss making low-cost subsidiary, Tigerair Australia. An investment fund manager made the call at an investor forum in Melbourne, Australia, last week, sparking a round of media speculation. But Virgin Australia says the speculation is inaccurate and uninformed, telling Simple Flying it has zero intention of shutting down Tigerair.
What the investment fund manager said.
A report in news.com.au cites Mark Landau, MD of investment firm L1 Capital, saying Tigerair Australia needed to cut capacity or close down altogether. Mr Landau told the Future Generation investor forum in Melbourne that;
“Tiger is losing money on many routes and it will be forced to significantly cut capacity or shut down altogether.”
L1 Capital styles itself as a neutral investor. It is worth noting it has a stake in Qantas. However, Tigerair hasn’t made a profit since 2016, and then only a meagre USD$1.5 million. Tigerair had a negative 8% margin on EBIT in the 2018/19 year. Mr Landau said;
“… We believe that would only have deteriorated this year given the weakening domestic leisure market.”
Current L1 Capital analysis suggests the airline is flying several routes at -15% margins or worse. Mr Landau says this is unsustainable.
Virgin Australia says the speculation is inaccurate and uninformed
But Virgin Australia moved quickly to slap the speculation down. A spokesperson told Simple Flying;
“Virgin Australia has no intention of shutting its budget carrier, Tigerair, and any suggestion is completely inaccurate and uninformed.
Tigerair will continue to play a very important role as the budget carrier for the Virgin Australia Group now and into the future.”
Tigerair has struggled to gain traction in Australia
Tigerair has a fleet of 16 aircraft that fly to 12 destinations. Last month, as part of a strategic cost-cutting program at Virgin Australia, it was announced the Tigerair fleet would be trimmed to 14 aircraft and three routes would go. Those routes are Brisbane – Darwin, Sydney – Proserpine, and Adelaide – Brisbane.
Tigerair has been operating in Australia since 2007 and has struggled to gain traction against local low-cost carrier behemoth, Jetstar. But Qantas does a much better job of working both its full service and low-cost brands in a kind of discrete synchronicity. They generally fly on different routes and where they do share markets, they have distinct price points. Jetstar also makes money. It made the Qantas Group USD$269 million in the last financial year.
Virgin Australia says Tigerair remains important
The Virgin Australia / Tigerair relationship has never gelled like the Qantas / Jetstar version. Rather than working in tandem with the parent airline, Tigerair seems to operate like an unloved and neglected little sibling. Of course, Virgin Australia doesn’t see it quite like that. The news.com.au report quoted a Virgin Australia spokesperson saying;
“Tigerair will continue to play a very important role for the group. Operating a budget carrier enables us to cater to a growing budget market in Australia. A number of changes are underway to improve Tigerair’s financial performance.”
But can Virgin Australia and its newish CEO, Paul Scurrah, pull Tigerair out of the doldrums? Strategic Aviation Solutions aviation analyst, Neil Hansford, thinks not. He said to news.com.au;
“It didn’t make money when they bought it, it doesn’t make money now; they should not have bought it. Virgin’s big mistake was to invest in a business that was losing money. I don’t think it will ever turn a profit.”
Virgin Australia’s response to this week’s speculation concerning the future of Tigerair has been robust. Notwithstanding what some observers may think, it seems Tigerair is going nowhere for the time being.