Virgin hopes to fend off Qantas dominance with Alliance deal

written by Adam Thorn | November 3, 2020
Alliance Aviation Services is supporting the Breast Cancer Network Australia. (Dave Parer)
Alliance Aviation Services is supporting the Breast Cancer Network Australia. (Dave Parer)

Virgin has applied to the ACCC to collaborate with Alliance on 40 regional routes to safeguard its market share against Qantas.

The airline argues it would be hard to serve smaller towns with its post-administration, stripped back fleet and ceding to Qantas could result in more expensive fares for passengers.

The revelation comes days after the national carrier’s chief executive, Alan Joyce, predicted Virgin’s new scaled-back strategy would see his airline’s domestic market share increase from 60 to 70 per cent.

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The deal between Virgin and Alliance would include sharing cost information, agreeing capacity, and collaborating on 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.

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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, the flag carrier 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”.

Last month, Joyce bullishly predicted, “Over time, our domestic market share is likely to increase organically from around 60 per cent to around 70 per cent, as our main competitor changes its strategy.”

Joyce’s comments came just a week after Virgin’s current CEO, Paul Scurrah, apparently resigned to be replaced by former Jetstar boss Jayne Hrdlicka.

His departure was significant because he was synonymous with the airline’s plan to operate as a mid-market ‘hybrid’ rather than reverting back to being a low-cost carrier like predecessor Virgin Blue.

Proposed routes:

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

  • Canberra
  • Kununurra
  • Newcastle
  • Mildura

10 Comments

  • Dennis

    says:

    Really? Don’t see that idea ‘flying’ at all.
    Hare-brained thinking, costing big $, is one of the many reasons’ VA went broke.
    It’s now owned by a PE group, which has no experience in ‘running’ an airline, let alone profitably.
    Maybe this is Bain’s idea all along.
    Time will tell.

  • James

    says:

    Great move. Hope it happens

  • Ronald Spencer

    says:

    Qantas is a shareholder in alliance are they going to do business with a competitor

  • James

    says:

    What makes you think that it’s going to cost be dollars Dennis? That makes absolutely no sense at all. I think it’s a brilliant idea.

  • Td

    says:

    Bain knowingly got rid of the aircraft and the crew and support staff that could do the job. Now they want to keep what they gave up . Can’t have it both ways but either way Qantas benefits by shareholding or by competing. Maybe Alliance should be the new Rex . It’s open slather now as the old Virgin doesn’t exist anymore for all intensive purposes other than in name and hard working professional dedicated Aussie staff.

  • Dennis

    says:

    Hey, James…….
    By your comment, you’ve no idea how airlines’ work, including terms of ‘codeshare agreements’, & other rules & regs. that they must abide by.
    You do know that QF has 19.9% shareholding in Alliance, don’t you? Maybe not.
    I’d be very surprised if the ACCC sanctions this application.
    As Bain has ‘pushed back’ signing final paperwork on purchase of VA, for another two weeks’, this application could become non-existent.
    Time’ll tell.

  • Nate

    says:

    To TD, above….

    The phrase you were looking for is, ‘for all INTENTS’, & purposes’.
    These could well be ‘intensive’, depending on circumstances’!

  • James

    says:

    Hey Dennis,

    You might be embarrassingly surprised about how I understand airlines work.

    Firstly, the 19.9% QF shares are passive. They have no managing control of QQ at all, so they are entirely irrelevant to this application.

    Secondly, this particular application is a collaboration between the 2 airlines. Sharing route and pricing information (which one would already know quite a bit about, since they have been using their wet lease aircraft for a long time) and being flexible on routes where dumping a 737 once a day just doesn’t work.

    My original comment was based on you saying it will “cost big $” and that being a reason for issues in the past.

    My statement stands that this has no way of costing big dollars and is in fact a very clever and sensible thing to do for VA as it will allow them to slide a far more flexible aircraft onto a route either when demand dictates it, or place a QQ aircraft on it full time instead of their 737’s in order to get the most yield off it to benefit from the capacity, as opposed to frequency.

    The ACCC is making an announcement on the interim decision this week.

    Time’ll tell….

  • Dennis

    says:

    Oh James,

    At no stage would I ever be ‘surprisingly embarrassed’ about various peoples’ knowledge of how airlines’ work.
    With my multi-decades’ distinguished career in various areas’ of International Airlines, I, too, have great knowledge of how they work.
    No matter your reasoning, everything, whatever the implementation, comes at a $ cost in aviation. Nothing is ever ‘free’ & ‘cheap’ in this wonderful area of our lives’.
    I look forward to hearing the ACCC announcement.
    And yes, I totally concur, time’ll tell!

  • Dennis

    says:

    Hello James,

    ‘AA’ news just to hand, in that ACCC have granted a ‘temporary interim’ allowance for VA & Alliance to ‘join’ on various Domestic routings.
    So, let’s see how that works in reality.
    Already Rex is jumping up & down about it. They sure don’t like ‘competition’ in any form!
    Cheers!

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