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Why it does not make sense for IndiGo to buy Virgin Australia

Ashwini Phadnis New Delhi | Updated on May 12, 2020

InterGlobe denied the report and categorically stated that it does not have any interest in this matter

Delhi-based low-cost airline IndiGo has clarified that it is not in talks to pick up a stake in Virgin Australia (VA).

In a statement to the media, Ronojoy Dutta, Wholetime Director and Chief Executive Officer, IndiGo said: “We deny the contents of these reports and would like to clarify that IndiGo has not formulated any indicative proposal, nor does it have any interest in this matter.” VA went into liquidation recently with a debt of around $5 billion.

However, despite this denial, rumours continue to float that InterGlobe Enterprises, a large Indian conglomerate with positions in aviation (IndiGo airlines), hospitality and travel-related services, is interested and is examining the possibility of putting in a bid for VA.

A more in-depth look at the scenario, however, makes it clear that this marriage between the two is unlikely to solemnise.

Industry watchers give many reasons why this is so. First, Virgin Australia is not a low-cost airline making its customer profile different from that of IndiGo which is an out and out low-cost airline.

 

“Virgin Australia moved from a low-cost airline to a full-service airline while IndiGo has continuously maintained that they are comfortable being a low-cost airline hence there is a definite mismatch there, Being a full-service airline, the profile of customers (business, value-added service needs, loyalty programs etc.) will be different and hence not much synergy can be extracted,” said an industry watcher who declined to be identified as IndiGo has officially denied that it is picking up a stake in VA.

Another industry watcher felt that it would be surprising if InterGlobe enters the Australian market through the acquisition of VA.

“They have an entirely different fleet mix for one and trying to connect India and Australia would not be a strategy I will pursue. The way to win that market is to beat Qantas domestically, which is pretty tough as it is a great brand and good product,” another industry watcher points out.

The VA website shows that it has a fleet of about 116 aircraft a majority of which are Boeing aircraft -- it has 75 Boeing 737-800 and Boeing 737-700 aircraft in its fleet.

In comparison, IndiGo has a fleet comprising of the Airbus A 320 family of aircraft. The two airlines operate the smaller ATR variety of aircraft with VA having 14 and IndiGo 74 such aircraft. But these smaller aircraft will not be able to help either airline in connecting with the Indian or Australian markets as they do not have the range to fly between India and Australia non-stop.

Some say that at this time like most others airlines globally IndiGo too is resorting to cutting staff salaries and will find it difficult to explain how it is going in for possible acquisition that could cost around $5 billion.

However, one thing which might drive the two partners closer is that Indians are visiting Australia in large numbers and Air India is the only airline from both the countries which offers non-stop flights between the two countries.

Tapping into this vast India-Australia market through a secondary point to which the aircraft in the IndiGo fleet can fly and then connecting passengers on a VA flight to complete their onward journey is a possibility that makes business sense for both the airlines. For example, IndiGo’s A 320 family of aircraft can fly from India to Singapore and from there pick VA passengers wanting to come to India. Similarly, While an Airbus A-320 family aircraft or the larger aircraft which VA has can fly say to Singapore or other destinations in South East Asia from Australia and IndiGo can pick up passengers wanting to travel from Australia to India from there.

Will this be reason enough though for IndiGo to bid for VA is the question.

Published on May 12, 2020

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