ACCC approves Virgin Australia-HNA Group alliance for five years

Virgin Australia will operate Airbus A330-200s between Melbourne and Hong Kong from July, breaking Qantas and Cathay Pacific's stranglehold on the route. (Rob Finlayson)
Virgin Australia will operate Airbus A330-200s between Melbourne and Hong Kong from July, breaking Qantas and Cathay Pacific’s stranglehold on the route. (Rob Finlayson)

Australia’s competition watchdog has given the proposed alliance between Virgin Australia and HNA Group its seal of approval.

On Friday, the Australian Competition and Consumer Commission (ACCC) said in a draft determination it had approved Virgin’s alliance with HNA Group and its affiliated carriers for a five-year term.

The ACCC had already granted interim authorisation in March, allowing Virgin to begin ticket sales for a five times weekly Melbourne-Hong Kong service due to kick off on July 5.

In its draft determination, the ACCC said the alliance would “assist in the commencement of new services between Australia and Hong Kong and Australia and mainland China by Virgin Australia”.

“The ACCC also considers that these new services are less likely to be operated, at all or on the scale currently proposed, without the alliance in place,” the ACCC draft determination said.

“The ACCC considers the alliance is likely to result in a significant public benefit through supporting the introduction of these new services.”

While Virgin and HNA had sought a 10-year period of authorisation, the ACCC chose to approve the partnership for only five years, arguing a shorter period was appropriate given the “dynamic nature of the aviation industry”.

“This is consistent with the length of authorisation granted to other analogous airline alliances,” the ACCC said.

The draft determination noted a submission from Air China expressing concerns the alliance may “substantially restrict competition for feeder traffic on Australian domestic routes” if it prevented other Chinese airlines from reaching codeshare or other agreements with Virgin for so-called behind gateway or Australian domestic routes.

Virgin told the ACCC in response the alliance did not preclude it from offering domestic Australian codeshare to Air China if Virgin Australia considered that there was a commercial benefit in doing so. Further, Virgin said it had an existing interline with Air China which would continue.

On the issue of codeshares or interline agreements with other airlines, the ACCC said: “For the avoidance of doubt, the ACCC proposes to grant authorisation subject to a condition that the applicants do not, during the term of the authorisation, enter into or give effect to any contract, arrangement or understanding which has the effect of preventing or restricting any of the Alliance airlines from entering into interline and/or codeshare agreements with any other airline.”

As part of the alliance, Virgin and Hong Kong Airlines, Hainan Airlines, Beijing Capital Airlines and Tianjin Airlines would codeshare on each other’s services between Australia and mainland China and Hong Kong, including flights via New Zealand and on routes within HNA Group airlines’ domestic networks.

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

There would also be reciprocal frequent flyer benefits, cooperation on joint pricing and scheduling of services between Australia and Hong Kong and Australia and mainland China.

Currently, Hainan Airlines has four Australian routes – Changsha-Sydney, Changsha-Melbourne, Xi’an-Sydney and Xi’an-Melbourne, while Beijing Capital Airlines operates Melbourne-Qingdao-Shenyang and Tianjin Airlines plans to begin Chongqing-Melbourne from September.

Meanwhile, Hong Kong Airlines flies to Cairns and the Gold Coast. It 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.

A final determination from the ACCC was expected in July, following a period of public consultation.

Virgin Australia chief executive John Borghetti welcomed the ACCC draft determination.

“This new alliance will provide significantly more competition and choice for travellers. When the alliance is in place, guests will enjoy an expanded network of destinations across Australia, mainland China and Hong Kong,” Borghetti said in a statement.

“The alliance will also enable Virgin Australia to accelerate its access to the Chinese travel market and work with HNA in driving inbound visitors to Australia, which will benefit our tourism industry and broader economy.