Virgin Australia seeks ACCC interim authorisation to begin ticket sales for Hong Kong flights

“Given the urgency, and the fact that the grant of interim authorisation does not raise material competition risks, the parties seek authorisation from 20 March 2017 pending a decision on final authorisation,” the Virgin, HNA Group and Hong Kong Airlines application said.

“Due to the long lead times to attract sufficient passengers necessary in order to make new long-haul services successful, the Applicants will need to commence the marketing and sale of new services as soon as possible and therefore seek interim authorisation.”

Virgin first announced plans to operate to Hong Kong after welcoming HNA Group as a shareholder in June 2016. The flights were slated to begin in mid-2017 with Airbus A330-200s, according to the airline’s application to Australia’s International Air Services Commission (IASC) for the necessary traffic rights to serve Hong Kong.

In February, Virgin also announced further details regarding its alliance with HNA Group carriers, Hong Kong Airlines and HK Express, which covered codesharing, reciprocal frequent flyer benefits and cooperation on joint-pricing and scheduling of services between Australia and Hong Kong and Australia and mainland China.

There were also other areas of cooperation to achieve “cost synergies through aircraft scale and utilisation benefits as well as benefits from using catering, ground handling, cargo and other operational benefits”.

In addition to its large stable of carriers, HNA Group also has strategic investments in aircraft leasing (Avalon), catering (gategroup) cargo, ground handling services (Swissport), hotels and travel agency businesses

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Virgin has not nominated which Australian city flights to Hong Kong will operate from.

While the application to the ACCC did not disclose the Australian gateway city, Table 6 of the document showed the cities the flight would originate from were “likely Sydney, Brisbane or Melbourne”.

The applicants said the alliance would offer travellers more choice and increase competition, noting Qantas and Cathay Pacific had a combined 99 per cent share of passengers and capacity on nonstop services between Australia and Hong Kong in 2015/16.

Virgin also planned to operate between Australia and mainland China, likely to be Beijing. However, no start date has been announced.

The application to the ACCC showed China Southern was the largest carrier between Australia and China with 44 per cent capacity share and 44.6 per cent passenger share.

“With the introduction of new and recently launched services, the applicants will be providing a new option for travellers and will increase competition with the incumbent carriers including Qantas, China Southern, China Eastern, Air China and Cathay Pacific,” the application said.

“Inbound tourism from China is forecast to be a key source of growth for the Australian tourism industry and the Alliance will allow the Applicants to meet this increasing demand, and also further stimulate inbound tourism by marketing and selling Virgin Australia’s services in mainland China and in Hong Kong.”

The codeshare agreement would cover Virgin Australia, Hong Kong Airlines, Hainan Airlines, Beijing Capital Airlines and Tianjin Airlines’ services between Australia and mainland China and Hong Kong, including services via New Zealand and on routes within HNA Group airlines’ domestic networks, the application said.

However, as bilateral restrictions prevented codesharing between Hong Kong and mainland China, Virgin would offer interline connections from Hong Kong into mainland China.

Also, the application said “a significant benefit of the Alliance is that HNA Group may, in the future, be in a position to offer Chinese-based travellers the option of a triangular service that allows passengers to travel via New Zealand”.

The application, which was dated February 17, said HNA Group airlines and Hong Kong Airlines offered a combined 14 return flights a week out of Australia. The addition of “up to two new daily services operated by Virgin Australia” would increase the number to 28.

Hong Kong Airlines is unable to operate to any of Australia’s four major gateway cities – Brisbane, Melbourne, Perth and Sydney – as there is no more capacity for Hong Kong carriers under the current bilateral air services agreement.

“The only way that Hong Kong Airlines is able to expand to these cities is through a partnership with Virgin Australia,” the application said.

“The new services that will be introduced under the Alliance by Virgin Australia will therefore be of substantial benefit to Hong Kong Airlines and its passengers.

“In particular, the new Australia-Hong Kong service that will be offered by Virgin Australia as a result of the Alliance will enable Hong Kong Airlines to significantly grow its presence in Australasia.”

The application said HK Express, which is a low-cost carrier, would initially be an “inactive” member of the alliance and did not intend to be an active member until a “future point in time”.

“Over time, the Alliance will grow in importance for HK Express as the extent of cooperation increases,” the application said.

The application said aspects of the airlines’ proposed cooperation in China were also subject to competition law approvals in China.

Submissions in response to the application were due by March 14. Those seeking to make a submission with respect to interim authorisation were due by March 7.

The ACCC said it expected to issue decide on interim authorisation by March, with the final determination slated for May/June.