Consumer watchdog blocks re-authorisation of Virgin and Alliance FIFO partnership

Two weeks after the Australian Competition and Consumer Commission (ACCC) announced it would oppose a tie-up of Alliance Aviation (ASX: AQZ) and Qantas (ASX: QAN), the competition watchdog has stepped in to block another partnership for the regional carrier.

The ACCC has today denied Virgin Australia and Alliance’s application for re-authorisation of their agreement to coordinate and jointly tender for supply services to corporate customers, mainly for fly-in fly-out (FIFO) employees.

The consumer watchdog says the partnership has not delivered the extent of public benefits that were foreshadowed when it originally authorised the arrangement in 2017, and that the alliance was likely to reduce the number of bidders in tender processes for charter services.

“This application involves the second and third largest providers of FIFO services jointly tendering and coordinating services. The airlines have not demonstrated to us that there’s sufficient public benefit to outweigh the likely detriment from their proposed coordination, so we have decided not to re-authorise the conduct,” ACCC chair Gina Cass-Gottlieb said.

“We’re concerned that continuing the charter alliance is likely to reduce the number of bidders in tender processes for charter services, particularly when there would only be one other large provider of these services, and so the potential incentives to reduce service levels or raise prices for FIFO charter services would remain.”

The watchdog says it considered submissions and came to the understanding that, while there was some support for the alliance, a ‘number of customers do not place significant value on having a combined charter and Regular Public Transport service offering from Virgin and Alliance’.

In fact, the ACCC says those that made submissions preferred the pair submit stand-alone bids.

“The agreement to not compete for each other’s customers, while not always implemented to date, is also likely to reduce competition and incentives for the airlines to invest and innovate,” Cass-Gottlieb said.

Ultimately, the watchdog says it is not satisfied that the public benefits of the agreement outweigh the detriments.

In addition to blocking re-authorisation of the partnership, the ACCC has also decided not to grant conditional authorisation for a five-year period as requested by Virgin and Alliance as it ‘had the potential to prolong much of the detriment’.

However, the watchdog did concede somewhat and granted the two airlines ‘interim authorisation’ to allow the pair to fulfil existing contracts ‘for a short period of time’.

“The ACCC has told Virgin and Alliance that if they believe there would be public benefits from seeking an additional, transitional period of authorisation to enable them to unwind the charter alliance, they can lodge a new application,” the ACCC said.

The decision comes after the ACCC opposed a proposed merger of airlines Qantas and Alliance Aviation valuing the latter at $919.2 million on the basis it would ‘substantially lessen competition’ in the FIFO transport space.

At the time, Alliance managing director Scott McMillan said he was disappointed with the ACCC’s decision.

“While we respect the ACCC and its process, we remain of the view that there is a strong industrial logic for Alliance to be part of the Qantas Group and that the proposal does not substantially lessen competition,” McMillan said.

“We also think there is a compelling case that the proposed transaction will lead to superior outcomes both for Alliance shareholders and for our customers.”

Shares in AQZ are up 1.65 per cent to $3.08 per share at 10.31am AEST.