Virgin, Alliance tie-up to keep regional routes flying

Some 40 regional routes across Australia could be covered under a new Virgin-Alliance partnership.

By David Flynn, November 19 2020
Virgin, Alliance tie-up to keep regional routes flying

Virgin Australia and Alliance Airlines have received a green light to expand their partnership to cover 41 regional domestic routes, and two short-range international routes.

The downsizing of Virgin's fleet under new owners Bain Capital, along with a sharper focus on profitable routes, put scores of regional routes at risk.

Virgin approached Brisbane-based Alliance to help fill that gap, and the Australian Competition & Consumer Commission has now offered tentative approval for that increased cooperation between the two carriers, who already enjoy a codeshare relationship on several routes from Brisbane.

In granting interim authorisation today, the ACCC said the new arrangement was "likely to result in a public benefit by assisting in the re-establishment of Virgin Australia’s national network of routes, thereby promoting competition in airline services."

"The Covid-19 pandemic has significantly disrupted the aviation industry in Australia," noted ACCC Commissioner Stephen Ridgeway.

"This interim authorisation will help facilitate a more competitive aviation landscape as Australian consumers resume travelling and demand for flights increases."

This will pave the way for Virgin to re-establish a number of regional routes which were suspended or withdrawn in response to Covid-19.

While Virgin and Alliance will not compete with each other on the routes covered by the agreement, the ACCC expects Qantas and Jetstar "are likely to compete strongly" on many of the regional routes.

Under the ACCC-approved agreement, Virgin Australia and Alliance Airlines will be allowed to share information and agree on service capacity, schedules and potentially revenue sharing on the nominated routes, as well as new routes not currently serviced by either airline.

PREVIOUS [ November 2, 2020] | Virgin Australia plans to expand its partnership with Alliance Airlines as a way to continue serving regional markets as a more streamlined Virgin takes flight under new owners Bain Capital.

Some 40 regional routes have been earmarked in an application to the Australian Competition & Consumer Commission for increased cooperation between the two carriers, who already enjoy a codeshare relationship on several routes from Brisbane.

Almost half of the routes cited spear out from Brisbane and Cairns, including two short-range international legs to Port Moresby and Honiara.

Also listed in the ACCC proposal are:

  • Sydney to Canberra, Albury, Ayers Rock, Coffs Harbour, Port Macquarie, Tamworth
  • Melbourne to Canberra, Mildura and Newcastle
  • Adelaide to Canberra, Alice Springs and Olympic Dam
  • Perth to Boulder, Kalgoorlie, Karratha, Kununurra, Newman, Onslow and Port Hedland

In its pitch to the ACC, Virgin cites its shift under Bain "to an all-Boeing 737 mainline fleet" and the removal of its ATR turboprops as potentially creating a hole in the airline's regional footprint.

The 176-seat Boeing 737s "are not appropriate or cost efficient to operate a number of the relevant routes," Virgin notes.

This includes runway limitations at some Queensland destinations such as Cloncurry, Emerald,  Moranbah and Weipa.

In addition, "regional New South Wales routes between Sydney and Port Macquarie, Tamworth and Albury have insufficient demand to be viably serviced with a Boeing 737 aircraft."

"Post administration, Virgin Australia is very likely to cancel loss- making routes," the application flags

"Virgin Australia remains committed to servicing these routes in the future, even though it may be unable to operate them itself" – which is where Alliance stands to fill the gap.

Alliance Airlines CEO Lee Schofield sees new potential as Virgin's regional partner.
Alliance Airlines CEO Lee Schofield sees new potential as Virgin's regional partner.

Virgin says it has ruled out the Fokker F100s of its own WA-based regional arm as "for operational and network reasons could not be deployed on the east coast."

Alliance Airlines' fleet of Fokker 50s, 70s and 100s is considered as "right-sized" for the nominated routes, with the addition of 14 Embraer E190 jets – the same type which Virgin used to fly until 2018 – offering further scope once they take wing in the first quarter of 2021.

"The current view is that we have a need for around four E190s upfront," Alliance Airlines CEO Lee Schofield told Executive Traveller in August, "but during the course of the 2021 financial year is when we'd expect to bring most, if not all of them in."

Schofield expects that Alliance's E190s could end up flying in a number of "slightly different configurations", including an all-economy layout and a two-cabin version with business class.

"We do like to have a bit of variability in the cabin configuration, and also we like to have the ability to change the interior configuration even while we are in service.”

Read more: Alliance embraces the Embraer E190

While the ACCC assesses this proposed two-year partnership with Alliance, it also continues to weigh up Qantas' interest in expanding its current 19.9% stake in the Brisbane-based carrier to what Qantas has described as "taking a majority position in Alliance Airlines in order to better serve the charter market by unlocking synergies."

"We view that as a compliment, as you expect, (but) we don't have any direct dealings with Qantas,'  Schofield told Executive Traveller.

"The ACCC obviously expressed some concerns about that but from day one, we said 'Our role is just to get on with running a business'... and that's exactly what we have done, kept our head down and focused on running our own business successfully."

"Things that we can't control – like COVID, like an ACCC process, like a potential takeover – they'll resolve themselves one way or another."

David

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

QF

11 Jul 2014

Total posts 533

What an interesting concept Qantas owning a majority of Alliance and Alliance supplying services to Virgin. 

Compare it to Beetroot from Edgell made at Golden Circles  factory under a different formula and both opposition companies had 98% market share combined. One day someone decided on a manufacturing price increase for the Edgell product?

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 259

Qantas only owns a 20% stake in Alliance.  Hardly a majority considering Super Annuation companies across Australia owns between 5-15% stakes each in Alliance as well.

Qantas - Qantas Frequent Flyer

28 Oct 2011

Total posts 403

What UpUpAndAway is referring to is the paragraph where Qantas says it is interested in taking up a majority ownership of Alliance in the future.

24 Aug 2011

Total posts 808

QF has zero chance of getting ACCC approval to move to control of Alliance Airlines due to the effect such a move would have on both regional and FIFO competition.  It cannot even get a board seat.  At some point, it will have to decide whether this investment makes sense or whether the cash could be better used elsewhere.

08 Feb 2018

Total posts 104

both Kalgoorlie AND Boulder??!

Qantas - Qantas Frequent Flyer

04 Mar 2014

Total posts 159

Land directly into the super pit

24 Aug 2011

Total posts 808

It is quite unlikely that Qantas will gain ACCC approval to acquire any more of Alliance.  ACCC is concerned about virtual monopoly in both regional and FIFO operations and the potential damage that could do to the economy.  

Qantas will, at some stage, have to decide whether it continues to hold its Alliance shareholding despite being unable to influence the business at all.  To date, the investment has been profitable but, given the damage caused by Covid, it is likely the cash could be better used than in a passive investment.

17 Jun 2020

Total posts 159

VirginLink

Qantas - Qantas Frequent Flyer

13 Jan 2018

Total posts 32

...or another aviation favourite, "VirginConnect"

wonder what aircraft Alliance would use on Sydney/Albury ?

Be nice if it was a jet. They could then possibly switch between an 80 seater F70 & 100 seater F100, depending on demand. (not sure how many seats there'll be in the "new" E190s)

Then choice of Virgin jet or qantaslink or rex turboprop.

28 Aug 2020

Total posts 3

Interesting that Virgin sent their EJets back to the lessors because they weren't economical to run yet here we have Alliance using the Ejets on Virgin's regional routes. Makes you wonder why Virgin couldn't make the Ejets work for them.

24 Aug 2011

Total posts 808

It's called cost of capital.  VA bought or leased its E-jets factory fresh where the unit cost was probably around USD40M after discount.  QQ has taken advantage of the Covid crisis and bought its secondhand E190 fleet as distressed assets and has only paid USD73M for the entire fleet including spares.

Thai Airways International - Royal Orchid Plus

15 Jan 2013

Total posts 320

it makes sense for the most part but will some people choose one of these planes of questionable age on the same sectors over say a qantas or virgin 737 if the option exists.

Virgin Australia - Velocity Rewards

24 Aug 2011

Total posts 775

Age is nothing. QF got almost 30 years from some 747s. TU-154s were still flying in the former Eastern bloc before COVID. It is the maintenance that counts. 

XWu
XWu

09 May 2020

Total posts 281

While VA may have preexisting contract with mining companies, and FIFO workers may use VA in previous lifetime for the FF scheme and status credit to access lounge services at lower threshold, all these considerations may very well be out of the question in the makeover of the new airline with very different products.

Why doesnt Alliance simply boost its presences in those FIFO shuttle and aim to get hold of mining contracts (the mining companies may not like what new products and prices new Bain-VA may offer) rather than deal with Bain’s potentially very different and unknown corporate culture including payment structure for charter services?

Just a stupid question from an armchair commentator?

 a nonstop jet service between Brisbane & Albury has worked in the past (doesn't have to be daily). With choice of 3 jets, Alliance can match size of jet to demand.

think most of Alliances profit come from Fifo, not fifo via Virgin.

09 Sep 2020

Total posts 7

For whatever reason can V mk 2 honestly tell the public when do they anticipate going Intetnational Long Haul and be honest about, 2, 3 or 4 years .

08 May 2020

Total posts 55

One Day Queensland have to open the Border, until such time air travel in Australia is in a bloody mess.  Still a mystery that the Queensland Gov invested a couple hundred Million Dollars in an Airline and strangle them to do business.  Once the State Borders are all open again Qantas, Jet S, Virgin, Alliance & Rex may become more clear how they will operate in future and survive.

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 259

Queensland borders are open to all except Greater Sydney and Victoria.  They just opened to regional NSW.

09 Sep 2020

Total posts 7

More I looked into this I found sonething weird with this Alliance/Virgin compact. Alliance Airlines is part of the  QANTAS empire, as QANTAS is a major stockholder of Alliance , go figure

24 Aug 2011

Total posts 808

Alliance is not a part of the QF empire at all.  QF has 20% shareholding but is unlikely to ever get competition approval to move beyond that level.  QF has no management influence and is not able to claim a board seat.  Currently, its investment is purely passive which is not sustainable and, at some point, QF will probably sell down and take profits.

19 Jun 2020

Total posts 22

According to Davids recent article, Rex say they have 40% of their regional customers fly interstate once they arrive in the main airports and they want to tap into this business at the expense of others (although they say they are not targeting them). by flinging the main Sydney Melb/Bris routes as well with 737's. If Virgin and Alliance get this model done then that would make it harder fro Rex as they would then be competing for the two sector domestic market with the new alliance

01 Aug 2019

Total posts 9

So I gather Mackay will no longer see a VA branded aircraft and part of reason why they close the lounge as well 

why is Alliance able to offer per seat costs lower than Virgin ?

Super cheap aircraft, lower wages, less staff per aircraft ???

Perhaps more airlines should be following the Alliance business model ?

24 Aug 2011

Total posts 808

Alliance operates within its niche very well.  It knows it is structured to operate regional and FIFO services and can do so very profitably.  It also understands that getting involved in mainline services is not a profitable option given the dominance of Qantas and Virgin on these routes.  Its business model makes so much more sense than the doomed approach Rex is taking.

revo

disagree completely.

Alliance obviously has costs under control.

Fokker jets might be thirsty, but cost nothing, so don't need to fly them hard.

Rex is leasing ex Virgin jets for cents in the dollar, so their costs are going to be low & with less staff per aircraft on lower wages, doing more.

I'm never going to fly Qantas or Virgin SYD/MEL at 7am on Monday morning if Rex is $300, Virgin $400 & Qantas $500.

Lower costs let you sell lower fares.

17 Apr 2013

Total posts 11

DO YOU THINK THEY WILL PAINT SOME OF ALLIANCES E190's into VIRGIN AUST LIVERY? It would be great to see the E190 in Virgin Australia colours again. 

Would be nice to see the E190 back in Canberra and other thinner routes along the way. :) 

31 Mar 2014

Total posts 345

Why are you yelling?

why would they spend $1 on paint, especially when same aircraft might be doing flights that are not for virgin.

MHG
MHG

21 Apr 2017

Total posts 14

It will be interesting to see Alliance's rates, because they are excessive. I routinely fly Adelaide to Olympic Dam for business and the fares range from $237-$484 one way. You can never get the cheap fare so fares range from $650-980 return. This of course includes a bottle of water and nothing else. I pay because I have to, but their fares are a rip off for 500kl trip.

virgin had a sales fare last week of $89 BNE/SYD to be booked a long way in advance.

Right now Jetstar doing BNE/MEL return from $122 (no bags)

24 Aug 2011

Total posts 808

Don't understand the comparison.

Booked travel for work colleague today for BNE trip in early December (fingers crossed it happens).  VA was $399 return, JQ was $396 with bags.  We took VA.  QF are not offering direct MEL-BNE as yet so they weren't considered....I hope they don't know something I don't!!!

Virgin Australia - Velocity Rewards

06 Jul 2020

Total posts 2

Any clarification around whether you will be able to earn Velocity points and status credits if you fly on Alliance as a code-share with VA? Or do you have to book directly with a VA flight number?

24 Aug 2011

Total posts 808

I believe you have to book flight with a VA flight number to get points and SCs.

just got an email from Pionair based in Sydney & their fleet seems to have grown quite quickly. Wonder if they will do any flying for Virgin ?

It seems they now have 10 x BAE146s (some are freighters, some quick change between freighters & passenger aircraft & some pure passenger aircraft up to 97 seats) & 2 & E190s (think they are managing 1 x E190-E2 for Air Kiribati).

A few of the 146s are operating for Qantas freight.

All aircraft are registered in Australia & so can do domestic or international charters.

146s are not subject to SYD curfew apparently as so quiet.

https://www.pionair.com.au/our-fleet


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