In a move set to change the Australian aviation industry, Singapore Airlines (SIA) has acquired a 10% stake in Virgin Australia for SG$133 million.
Experts say the move was made in an attempt to revive the SIA brand name which has been in the slumps and compete head on with the Emirates-Qantas partnership.
Nicholas Ionides, SIA's vice president of public affairs, said the strategic 10% stake in Virgin Australia demonstrates "the importance and strength of the partnership" between SIA and Virgin Australia.
Ionides stressed that its agreement with Virgin Australia is unrelated to the announcement of Virgin Australia buying 60% shares in Tiger Australia. SIA currently holds a 33% stake in Tiger Airways Holdings (TAH) which owns 100% of Tiger Australia.
Following regulatory approval, SIA will indirectly hold 6% (through Virgin) and 13.2% (through TAH), bringing it to a total of 19.2% of Tiger Australia.
Earlier in the year, Singapore Airlines shocked the public with its quarterly loss in more than two years which saw a 69% year-on-year drop from last year's results. This was topped of with a loss of SG$38.2 million.
Nick Foley, president, Southeast Asia and Pacific, Landor Associates added that the move is long overdue on SIA's part "especially since SIA missed out on buying over a stake in Ansett."
Ansett, a major Australian airline group in the 1990's, was acquired by Air New Zealand, when it outbid SIA. However Ansett ultimately faced a financial collapse and was liquidated in 2002.
"Air New Zealand destroyed Ansett and sadly the brand does not exist any more," Foley continued.
"SIA clearly won't be fooled again, so they have cleverly bought into an Australian airline with good potential. SIA needs a successful domestic partner in Australia and the deal with Virgin will enable that."
Keith Timimi, chairman of VML Qais also agreed that this was a savvy move on SIA's part but cautioned that "one has to worry about the Singapore Airlines brand itself."
"It still feels like the best airline in the world, at least to me, but it also feels like an airline that is living off past glory," Timimi said.
To remedy the situation, Timimi added that SIA needs to "re-invigorate its brand fast, or risk losing relevance" and market share to low cost carriers such as Air Asia.
Both Timimi and Foley agreed that the move is a smart one for Virgin as it allows the career to go head to head with Qantas.
Foley added that previously, "Virgin would have branded all the Tiger Australia A320 jets in the Virgin livery". However, since Virgin is competing directly with Qantas as a full service domestic airline, it needs a low cost carrier brand to take the fight to Jetstar.
"This is a classical exercise in segmenting the market. Consumers in Australia will now have a choice of budget airlines with Jetstar versus Tiger and at a mainstream and premium level passengers can choose between Qantas and Virgin," Foley added.
Tiger Airways Holdings told Marketing that following the deal, Tiger Australia hopes to leverage the respective strengths of both its shareholders in network planning, operational management, and procurement, while enjoying the benefits of a low cost and internet-based distribution platform."
Upon approval, Tiger Australia will sign a license agreement with parent company TAH, for the use of the Tiger brand for 20 years. It will operate as a low cost domestic carrier and continue to use Tiger Airways' website as the main marketing and distribution channel.
"The brand will be in a better position to expand faster and offer more routes/services to customers in the budget end of the market," the spokesperson added.
Recently, the Australian Communications and Media Authority (ACMA) fined Tiger Airways A$110,000 as the airline was found guilty of spamming its customers with emails.
In a separate announcement, Virgin Australia also announced its plans of acquiring regional carrier Skywest.