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This will pave the way for Virgin to re-establish a number of regional routes which were suspended or withdrawn in response to Covid-19.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