ACCC opposes WA Fifo alliance

The competition watchdog said today it planned to deny authorisation to a proposed partnership between Virgin Australia Holdings and Alliance Aviation Services because it would lessen competition in the West Australian market.

The Australian Competition and Consumer Commission said the agreement would reduce the number of major fly-in, fly-out service providers in Western Australia from four to three, with the others being Qantas and Cobram Aviation Services.

More importantly, this would mean just two suppliers, Qantas and Virgin/Alliance, would be competing for the majority of Fifo services, the ACCC added.

The agreement between Virgin subsidiary Virgin Australia Regional Airlines (VARA) and Alliance was announced in February, when the two companies said it would focus on new opportunities in the charter market.

The two companies said they would retain their existing contracts and customers but that was not enough to satisfy the ACCC.

“The charter alliance will largely eliminate competition between VARA and Alliance Airlines in providing Fifo services to corporate customers in Western Australia,” ACCC commissioner Sarah Court said in a statement.

“The ACCC considers that the likely public benefits will not outweigh the significant public detriment likely to result from VARA and Alliance Airlines coordinating their Fifo services in Western Australia.

“Therefore, the ACCC’s preliminary view is that this alliance is likely to materially reduce competition for the supply of FIFO services in Western Australia.”

The ACCC acknowledged the alliance was likely to result in some public benefits.

These included operational efficiencies through integrating VARA and Alliance Airlines’ Perth operating bases, increased flexibility and optimisation of aircraft utilisation through combining their fleets, and combining Virgin Australia’s national passenger network with Alliance Airlines national charter network.

But given the ACCC’s conclusion that the charter alliance was likely to lessen competition for Fifo services in Western Australia, the watchdog said it was unlikely that the benefit of these efficiencies would be substantially passed through to corporate customers in Western Australia. 

Brisbane-based Alliance said today it would review the ACCC’s concerns and provide additional support for the proposed agreement.

The ACCC is seeking submissions by 27 January on the draft determination, particularly from Fifo customers.