Virgin Blue-Etihad alliance gets final approval: up next, Delta and an Asian airline?

The alliance between Virgin Blue and Etihad has received the blessing of the ACCC (Australian Competition and Consumer Commission), with the government competition watchdog affirming that the partnership is more likely to help the growth of the airline industry rather than hinder it.

‘‘The ACCC considers that the alliance is likely to promote competition and result in new international services, in particular between Australia and Abu Dhabi with onward connections to Europe,’’ said ACCC chairman Graeme Samuel.

The five-year alliance will run until 2016, and Virgin Blue's international carrier V Australia will begin direct Sydney-Abu Dhabi services on February 24th. The thrice-weekly flight will connect into Etihad's extensive network of over 100 destinations across Europe, the UK and the Middle East, significantly boosting the reach of the V Australia brand as a competitor to Qantas.

Virgin Blue and Etihad will cooperate on joint ticket pricing and flight scheduling across their networks - activity that would be considered illegal without approval by the regulator. 

V Australia and Etihad will also share a new purpose-built airline lounge at Sydney International Airport for business-class, first-class and high-status frequent flyer passengers.

Members of the Etihad Guest and Virgin Blue Velocity frequent flyer programs enjoying fully reciprocal rights. The two airlines have signalled that they may even consider buying aircraft jointly to increase their bargaining power and reduce costs.

Virgin Blue CEO John Borghetti welcomed the approval, describing the Etihad tie-up as "a key part of our strategy of building an international network with global coverage that compliments our core domestic business."

A similar alliance with Air New Zealand will commence in the later half of this year, providing Virgin Blue customers with trans-Tasman access to AirNZ's long-haul network via its Auckland hub as well as the provision of additional direct services between Australian and New Zealand cities.

Borghetti, who has previously spoken of his desire for Virgin Blue to be a "virtual airline" based on strategic partnerships feeding into a 'spoke-and-hub' model', also hopes to form an alliance with US carrier Delta to open up the lucrative North American market.

Although the US Department of Transportation previously rejected this tie-in in September last year, both airlines have promised not to reduce flights between Australia and America if approval was forthcoming. The deal has already been approved by the ACCC.

Next on the to-do list is to partner with an Asian airline in a push for Asia-Pacific business travellers. Borghetti has cited Hong Kong, Singapore, China, India, Japan and Korea as key targets, admitting that Virgin Blue’s network needs “mainstream Asian ports (to) attract the corporate traveller”.

"Our international strategy recognises that it is impossible for any airline based at this end of the world to offer a global network on its own" he says. "Even 50 or 60 aircraft devoted to international services would not be enough. However, if you have the right alliances and partnerships you can offer hundreds of destinations with just a small fleet of international aircraft."

Borghetti admitted that with only four international-class Boeing 777s in the current fleet, “the only way we can become a truly competitive international airline in this country … is through these alliances, because to go out and spend three, four, five billion dollars’ worth of shareholders’ money on I think 30 or 40 aeroplanes is just not practical. So the alliance strategy is very important.”

“Clearly we can cover Asia by doing it ourselves in part, by doing it with a partner or partners” Borghetti noted. “I’m not really going to comment on which path we’re taking or how many of those paths we’re taking, but certainly there’s a lot of work being done on that space."

David Flynn

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.