Virgin, Delta seek 10-year renewal of trans-Pacific alliance

“Under the alliance, Virgin Australia is and will continue to be better placed to challenge Qantas’ continued dominance on the trans-Pacific,” the joint-submission said.

“The alliance assists in making Virgin Australia a stronger competitor across all sectors of the market, growing it as an important second international airline for Australia.

“The alliance delivers a strong third choice for consumers.”

The submission noted the average fare for a US to Australia return ticket was US$500 less in the second quarter of 2014 compared with six years earlier. This was despite the cost of operating flights having increased over that period.

Virgin, then known as Virgin Blue, first applied to form a joint-venture on trans-Pacific routes in 2009.

The US Department of Transportation gave the tie-up the green light in June 2011, while the ACCC approved the alliance for a five-and-a-half-year term in December 2009, allowing the two carriers to coordinate pricing, schedules, routes, offer reciprocal frequent flyer benefits and share revenue under the concept of “metal neutrality”.

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The submission to renew the existing alliance for a further 10 years said the trans-Pacific represented 22.3 per cent of all business travellers into Australia, the highest of any route into the country.

It said Virgin would “always face challenges in attracting corporate accounts and high frequency travellers away from its rivals if it cannot offer a competitive international network with destinations, frequencies and an enhanced customer and product offering all of which attract such passengers”, no matter how good its domestic product was.

“The alliance has enhanced competition for corporate accounts by providing Virgin Australia with the ability to offer beyond US travel and an improved product,” the submission said.

“A competitive North American offering is crucial to Virgin Australia winning and retaining Australian corporate/government accounts and the business of high frequency travellers.”

Currently, both Virgin and Delta offer a daily service between Sydney and Los Angeles. Virgin also flies daily between Brisbane and Los Angeles.

In October 2014, Virgin dropped its three-times a week service from Melbourne to Los Angeles and boosted its Brisbane service to daily.

Meanwhile, Qantas offered about 45 weekly services between Australia and the US, with service from Brisbane, Melbourne and Sydney to Los Angeles, Sydney to Dallas-Fort Worth and Sydney to Honolulu. United operates from Los Angeles to Sydney and Melbourne, as well as between Sydney and San Francisco.

Air Canada, Hawaiian Airlines and Qantas-owned subsidiary Jetstar also offer direct service between Australia and North America, while there are host of one-stop carriers such as Air New Zealand, Cathay Pacific and Fiji Airways active in the Australia-US market.

Under the Virgin/Delta partnership, there were 199 codeshare and interline destinations in North and Central America, as well as 59 codeshare and interline destinations throughout Australasia.

The two airlines told the ACCC the most popular connections in the US were New York and Las Vegas.

Interested parties have until February 6 to respond to the Virgin/Delta application.

The ACCC said it expected to issue a draft determination in March or April, with a final decision expected by May or June.