Rex hits out at Virgin and Alliance collaboration

Two weeks ago, Virgin applied to the ACCC to collaborate with Alliance, arguing it would be hard to serve smaller towns with its post-administration, stripped back fleet. It also said ceding market share to Qantas could result in more expensive fares for passengers. An interim decision is expected to be made this week.

“Allowing competitors to share such sensitive information under an interim authorisation carries significant risk as knowledge is not reversible; the parties simply cannot stop knowing what they know if final authorisation is denied,” Rex said in its submission to the ACCC. “Put simply, the egg cannot be unscrambled.”

The business also said the plans were “extremely broad” because they include “sharing information, including in relation to costs, willingness to operate … and pricing” and agreeing “which carrier will operate” the relevant routes identified in the application”.

“It is important to consider that the application does not just seek to allow this broad information sharing and co-ordination on the one route on which both parties currently operate (for which there is, therefore, a baseline as to how both parties allocate capacity and price in the absence of authorised co-operation),” it said.

“It also seeks to allow it on another 40 domestic routes, of which 23 are routes that neither of the parties operate (10 of these being routes that neither of them operated pre-COVID19) and three routes where one of the parties is currently sole operator.

“Because there is no baseline (other than for the one overlapping route), there is no ability to impose any pricing control of the kind used in the Rex authorisation. Furthermore, there is no proposal for any reporting obligations, as have been included in all COVID-related authorisations, including the Rex authorisation.”

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Earlier this month, Australian Aviation reported how the proposed deal would allow Virgin and Alliance to share cost information, agreeing capacity, and collaborating and flight schedules.

Virgin has requested an interim authorisation from the ACCC to start operating new routes as soon as possible, which includes services to regional towns from Brisbane, Alice Springs, Perth and Cairns.

The full list is at the bottom of the article.

In August, Virgin Australia announced plans cut 3,000 jobs and significantly downsize its fleet.

The new network will operate a 737 mainline fleet for domestic services but removing ATR, Boeing 777, Airbus A330 and Tigerair Airbus A320s. Its regional and charter fleet will also be maintained.

Alliance, meanwhile, recently received the first of 14 new Embraer E190s to add to its existing collection of 24 Fokker F100, 13 Fokker 70LRs and five Fokker 50 turboprops.

The ACCC’s report on the proposals states: “Virgin Australia has already announced that it will cancel a number of regional services for the foreseeable future due to depressed demand, unsustainable load factors, and the unsuitability of Virgin Australia’s proposed Boeing 737 fleet for routes with limited demand and which cannot be serviced using VARA’s Western Australia-based F100 fleet. Virgin Australia sees the proposed conduct as the most effective way to service the relevant routes and continue to serve these cancelled routes, in partnership with Alliance Airlines.

“If Virgin Australia does not have a presence or retain its slots on these routes, it will be increasingly more difficult for it to re-enter in the future, strengthening the position of the remaining competitors and ceding market share and reach to Qantas. This may result in more expensive airfares, less favourable terms and conditions, reduction in quality of in-flight services and a reduction in the number of flight options (routes and frequency) available to consumers.

“The ability for Virgin Australia to offer a full network of services, but to do so without sustaining operational losses, is crucial to its ability to restore confidence in its services and brand as it comes out of voluntary administration.”

The deal could be further complicated because the ACCC has been long critical of Qantas itself acquiring shares in Alliance.

In June, it warned it was considering “enforcement action” against the business if it found evidence that its 2019 acquisition of Alliance Aviation shares broke competition rules.

In February 2019, Qantas bought a 19.9 per cent stake in Alliance, but the competition watchdog accused the flag carrier of not first approaching it for permission. The deal was potentially problematic because Alliance and Qantas are the only two operators for regular passenger flights between Brisbane and Bundaberg and Gladstone.

Qantas told Australian Aviation then that it rejected the notion the acquisition had any impact on competition and said its shareholding was “entirely passive”.

Brisbane to

• Proserpine
• Mackay
• Emerald
• Mount Isa
• Cloncurry
• Port Moresby
• Rockhampton
• Moranbah
• Newcastle
• Gladstone
• Port Macquarie
• Bundaberg
• Weipa
• Tamworth
• Honiara
• Alice Springs
• Ayers Rock

Alice Springs to

• Darwin
• Ayers Rock

Perth to

• Newman
• Karratha
• Onslow
• Kalgoorlie – Boulder
• Kununurra
• Port Hedland

Cairns to

• Darwin
• Maroochydore
• Ayers Rock

Cloncurry to

• Mt Isa

Canberra to

• Maroochydore

Sydney to

• Canberra
• Coffs Harbour
• Port Macquarie
• Albury
• Tamworth
• Ayers Rock

Adelaide to

• Canberra
• Olympic Dam
• Alice Springs

Melbourne to