Virgin Australia, Alliance Airlines Call on ACCC to Approve Their Charter Partnership
31st Jan 2017
In a decision made in December last year, the Australian Consumer and Competition Commission (ACCC) rejected the Virgin Australia/Alliance Airlines proposed charter partnership, saying it will:
"Largely eliminate competition between VARA and Alliance Airlines in providing FIFO services to corporate customers in Western Australia."
Allowing Virgin Australia-Alliance Airlines charter partnership in Western Australia, will according to ACCC, allow only two operators- Virgin/Alliance and Qantas to compete for the majority of "fly-in/fly-out" (FIFO) contracts. The ACCC also voiced its concern that the alliance will reduce the number of players in this market to just three.
The two carriers, however, have not given up on their joint partnership and have called on ACCC to reverse its decision. In their response to the ACCC's draft, the carriers said the following:
"The fundamental rationale for the charter alliance is to provide a superior, more competitive product to corporate charter customers and not to increase prices or reduce service levels."
The airlines further proposed that ACCC monitors their charter alliance.
In a submission from 27th January, which was published on the ACC website, Virgin and Alliance said:
"Monitoring can include a review of performance metrics, such as average trip rates net of fuel, to see whether there is any material adverse movement in such rates over time. This is a highly unlikely outcome, but in any event could be transparently monitored by the ACCC. Other metrics that could be reviewed include the cost of value-adds charged to customers and the gross margins on charter contracts generated by the applicants. Denying authorization would therefore be denying FIFO customers the benefits of the charter alliance for a largely theoretical detriment."
The two airlines also stated that ACCC is wrong when it says the Western Australia market is served by only four operators, when there are eight.
"In fact there are currently eight established and capable operators in Western Australia, and there is historical evidence of both entry and expansion by smaller operators in this market. The state of competition is intense and will remain so with the charter alliance for the foreseeable future (and certainly within the period of authorization) ? as all operators have excess capacity due to the decline in demand for FIFO services."