ACCC issues draft determination to authorise Virgin cooperation that will allow Virgin Australia to more closely cooperate with Virgin Atlantic

17 September, 2019

The Australian Competition and Consumer Commission (ACCC) has issued a draft determination proposing to authorise Virgin Australia to more closely cooperate with Virgin Atlantic on flights between Australia and the UK and Ireland, via Hong Kong, Los Angeles and any other future mutual connecting points. The ACCC already granted Virgin Australia and Virgin Atlantic interim authorisation in Jul-2019 and this will remain in effect until a final authorisation decision is announced.

“Virgin Australia and Virgin Atlantic have asked to be authorised to cooperate more closely to improve their services between Australia and the UK and Ireland and attract more passengers,” says ACCC Commissioner Stephen Ridgeway. “In authorising this cooperation, we expect to see improvements to the carriers’ schedules and services to passengers.”

ACCC says the deepened partnership will help support Virgin Australia’s current Hong Kong service. The airline considers that this will increase passenger numbers, enabling it to more sustainably operate the route.

Virgin Australia and Virgin Atlantic currently operate as separate businesses that do not operate overlapping services on any routes and are unlikely to do so in the future. They already have a codeshare arrangement, which allows each to market flights on metal flown by the other.

Authorisation will allow the two airlines to coordinate on a wide range of matters, such as jointly managing prices, inventory, and marketing strategies, which are not currently permitted in their existing arm’s length commercial codeshare and loyalty arrangements.

The conduct for which authorisation is sought includes joint pricing, inventory management, scheduling coordination, network planning and marketing on services to and from the UK and Ireland. Virgin Australia and Virgin Atlantic also propose to cooperate in relation to product alignment, airport operations, joint procurement and tenders for corporate contracts.

The draft determination proposes to grant authorisation for five years to enable Virgin Australia and Virgin Atlantic “to more closely cooperate on services between Australia and the UK/Ireland via mutual mid-points in Hong Kong, Los Angeles and any other future mutual connection point”.

Virgin Australia currently operates international services between Melbourne and Sydney to Hong Kong and Brisbane, Melbourne and Sydney to Los Angeles and services within domestic Australia. Virgin Atlantic operates international services between the UK and both Hong Kong and Los Angeles. There are no current flights between Australia and Ireland, but Virgin Australia does market flights on the Australia– Abu Dhabi – Dublin routing through a codeshare with Etihad Airways.

ACCC confirms that the applicants submit that while Virgin Atlantic has aircraft technically equipped to undertake a non-stop route from Perth to London, currently flown by Qantas, demand and yields are such that this service “would not be commercially viable”. Similarly, Virgin Atlantic does not intend to re-commence services between Hong Kong and Australia, and Virgin Australia would not commence its own services to the UK via any mid-point.

The ACCC considers it “unlikely” that their proposed conduct would result in any significant detriment to competition on existing or future routes between Australia and the UK and Irish markets. It also considers that allowing the two carriers to more closely cooperate “is likely to result in public benefits – in particular, an enhanced product and service offering including better scheduling and greater loyalty programme benefits”.

The draft determination remains subject to change and ACCC has now invited revised submissions before making its final decision. This is expected to be made in Nov-2019.