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FIRB gives Virgin-Tiger greenlight

Virgin Australia Holdings (ASX: VAH) has received approval from the Foreign Investment Review Board (FIRB), for its 60% acquisition of Tiger Airways Australia, removing one of the last conditions for the takeover.

Virgin made the announcement earlier today, but said the proposed transaction is still subject to certain conditions, and is expected to complete by mid-July. The company did not outline what those further conditions were.

As part of a multi-pronged strategy to take on Qantas Airways (ASX: QAN), Virgin plans to use Tiger to compete head to head in the budget segment against Jetstar, a Qantas subsidiary. Virgin is set to go head-to-head with Qantas, while Virgin’s earlier acquisition of Skywest Airlines will target QantasLink on regional routes.

Qantas isn’t taking the news lying down though, with CEO Alan Joyce today stating that its low cost carrier, Jetstar, can win any battle in the discount airfare market. In a swipe at Virgin, Mr Joyce suggested the airline was copying everything Qantas was doing, and wouldn’t be surprised if a kangaroo appeared on Virgin’s aircraft at some stage.

Mr Joyce’s comments came as he announced an upgrade of Qantas facilities at Perth airport, and an increase in the size and number of flights catering for fly-in fly-out workers heading to remote centres. Qantas will upgrade terminals three and four, with new lounges, improved gate access, faster screening and new check-in areas. A new frequent flyer Qantas Club will also be built, as part of a $100 million investment over the past four years.

Qantas is also adding an additional Airbus A330 on flights to Sydney and Melbourne, from Perth, with Mr Joyce confident about the growth levels that can be achieved.

Foolish takeaway

It’s difficult to imagine that Virgin wants to starts an airfare war with Jetstar as it tries to improve Tiger’s performance, both financially and operationally. Tickets on Tiger flights are more likely to rise above their current levels, which are not sustainable.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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