Not content with getting flag carrier Qantas offside, Australia's competition regulator has thrown out a deal between Virgin Australia and Alliance Airlines in the lucrative resources charter market. This means that three of the four main players in this sector have been prevented from doing what they want, with only Rex, through its National Jet Express company, happy to compete on a level playing field.
What is this all about?
These latest rulings from the Australian Competition and Consumer Commission (ACCC) relate to the Fly-In-Fly-Out (FIFO) sector, which essentially takes resource industry workers between mainline domestic hubs and their operating sites. The industry is dominated by the four leading players, Qantas, Virgin Australia, Alliance Airlines and National Jet Express (formerly owned by Cobham Aviation Services).
Last month the ACCC rejected a deal for Qantas, which owns 19.99% of Alliance Airlines, to move to full ownership of the specialist charter airline. The reasoning was that a Qantas/Alliance entity would have far too much market power and that the takeover would lessen competition, which was not in the market's best interests.
Qantas has written to the ACCC seeking more clarification, but this latest announcement indicates that the ACCC wants more competition in the sector, not less. It is an intriguing situation where an airline that's 19.99% owned by Qantas is in a partnership with its closest rival, Virgin Australia, with Qantas seemingly competing with itself had a complete takeover been allowed.
The net result of these two decisions is that Alliance Airlines (Alliance), Qantas and Virgin Australia have been told to get out there and compete on their own merits, which Rex is already doing in the FIFO sector.
The Virgin-Alliance deal
On Friday, the ACCC decided it would not extend the Virgin-Alliance cooperation, which allowed the airlines to coordinate and jointly tender for the supply of services to corporate customers, predominantly for FIFO employees.
ACCC Chair Gina Cass-Gottlieb said that the arrangement had not delivered the extent of public benefits promised when the deal was agreed back in 2017. She added:
"This application involves the second and third largest providers of FIFO services jointly tendering and coordinating services. The airlines have not demonstrated to us that there's sufficient public benefit to outweigh the likely detriment from their proposed coordination, so we have decided not to re-authorise the conduct.
"The agreement to not compete for each other's customers, while not always implemented to date, is also likely to reduce competition and incentives for the airlines to invest and innovate."
The original deal was ratified by the ACCC in 2017 and was due to expire in 2022, but an extension was granted until May 24th, 2023, while the ACCC conducted consultations and discussions on the merits of the arrangement. In October 2022, it issued a draft determination proposing to scrap the deal and give the applicants, and other interested parties, time to make further submissions before the final decision this month.
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There is copious information on the ACCC website about the applications, submissions and why they were denied, both for the Qantas-Alliance takeover and the VA-Alliance partnership.
However, there are two points in the Virgin Australia-Alliance application that must surely be anathema to anyone interested in competition, which are that VA and Alliance can:
- Jointly bid for and contract with corporate customers, including joint pricing and scheduling and agreeing not to compete for each other's specified pre-existing customers
- Agree not to supply services to each other's key competitors, with some limited exceptions.
Giving passengers access to frequent flyer points or lounge access is one thing, but agreeing not to compete for each other's customers is akin to a cartel, which is certainly illegal in Australia. The reason the ACCC gives these authorizations is to protect the airlines from prosecution arising from anti-competitive practices.
It is worth having a look at the many glossy airline partnerships that promise the world but take away true competition. Thank heavens for independent airlines and low-cost carriers.
What do you think? Let us know in the comment section.