Bali flights resume as Tigerair resolves impasse

Virgin Australia’s budget subsidiary Tigerair has resolved its costly impasse with the Indonesian government.

Australians stranded in Denpasar Airport. Picture: Raiza Andini

Virgin Australia’s budget subsidiary Tigerair has resolved its costly impasse with the Indonesian government and will recommence Bali flights two weeks from today.

But the budget airline will not be able to take any new bookings before the February 3 resumption date, which means it will have the wear the cost of a 21-day booking suspension and special Virgin flights to retrieve up to 5000 passengers stranded in Bali.

A Tigerair spokeswoman said yesterday that the airline had “received a key approval from the Indonesian government to operate scheduled flights to and from Bali using its Airbus A320 aircraft”.

The plan to resume normal flight was still subject to “final procedural approvals being secured”.

The airline will offer full refunds to passengers due to travel from Australia to Bali during the period from January 20 to February 2.

Virgin has brought back about 4000 passengers and fewer than 1000 are to be brought back before February 3.

Earlier, Citi Group had said in a research note that the grounding of Tigerair’s Bali flights could cut earnings for its parent by up to $5 million. The note said there were some parallels between the suspension by Indonesian authorities and the impact on Virgin from the volcanic ash in late 2015.

Using Virgin’s $19.2m EBIT impact from the Bali volcanic eruption in 2015 as a guide, Citi expected the loss to be up to $5m.

When asked about the financial impact, a Virgin Australia spokeswoman said: “It is too early at this stage to estimate the costs associated with this issue.”

CEO Rob Sharp said Tigerair Australia had obtained approval from the Directorate General of Air Communication to operate between Australia and Bali until March 25 this year.

On Tuesday, January 10, Tigerair was told by the Indonesian government that the agreement it had with them needed to conform to a traditional charter flight agreement until late March, which involves a number of new requirements.

“These included not being able to sell flights directly to the general public and not being able to honour all existing bookings during this period,” he said.

“As a commercial entity, we need to be able to sell tickets to the general public. Therefore, we have been working with the Indonesian government to secure approval to operate normal scheduled flights using our Airbus A320 aircraft.”

It is understood that the management of Tigerair’s interim ­approval to commence services to Bali had been overseen by the scheduled flights unit of the Indonesian government. But it was recently moved to the Indonesian charter services unit, which wanted to manage the flights as a pure charter arrangement.

Citi transport analyst Anthony Moulder said that a statement from Directorate-General indicated that Tiger had been selling tickets in and out of Bali contrary to its charter agreement.

“The Indonesians obviously have an issue with how Tiger has interpreted what it is permitted to do under this charter agreement,” he said.

Mr Moulder said the impact of the suspension on Tigerair could be significant because it was “damaging their forward booking profile the longer it leaves those flights outside their booking engine”.

“It has been eight days now. As with the volcanic ash cloud event in 2015, there will remain a lack of certainty as to when that would pass and when they could book with confidence. With Tiger not selling Bali flights until March 26 this is also expected to reduce confidence the longer it is unresolved.”

However, given Tigerair’s pricing was keener than its main competitor Jetstar, he expected the impact on sales to be “short-lived”.

He said that as Tigerair was a low-cost carrier the financial impact would be much less than Virgin’s hit. In the 2016 fiscal year, Tiger reported underlying EBIT of $2.2m.

His price guide for Virgin was 17c, compared with yesterday’s close of 22c.