The US Department of Transport has dealt a major blow to the proposed joint venture agreement between Delta Air Lines and Virgin Blue on services to the US, announcing its tentative decision not to grant in antitrust immunity, claiming that it would not be in the best interests of the travelling public.
In an ‘Order to Show Cause’ issued on September 8, the DOT said that the applicants had “not made a strong showing of public benefits” for the granting of antitrust immunity. In particular, it noted that there were barriers to the integration of Delta and Virgin Blue’s services which “at best, will delay the realisation of public benefits, and, at worst, could prevent any substantial benefits from being achieved at all.” It also noted that given the state of flux on the trans-Pacific market that there would be more public benefit in the two carriers competing than cooperating.
Another factor was the relatively short time that Delta and V Australia had been operating on the trans-Pacific market, while at the time of filing their request they had “just begun to explore a commercial relationship.”
As a tentative decision, both Delta and Virgin Blue now have 14 days to show cause as to why the decision should not stand, with the airlines indicating that they will work closely with the DOT.
“Virgin Blue strongly believes the proposed alliance with Delta will be good for consumers,” the airline said in a statement to the ASX.
Other interested parties may also make submissions, with the DOT to respond within seven days thereafter.
If the decision stands, it will be a major blow to Virgin Blue, which is repositioning V Australia to focus on the key hubs of Los Angeles in partnership with Delta to serve the US market and Abu Dhabi with Etihad to serve Europe and the Middle East. However, the refusal of antitrust immunity would not threaten the two airlines’ codeshare and interline arrangements, and it is expected that in time the two airlines could make another application once market conditions change or the two airlines have enhanced their commercial relationship.