ACCC tentatively approves Virgin Blue-Etihad alliance for five years; advantages for both

The draft determination concluded that the "ACCC is of the view that the alliance is unlikely to result in any public detriment given that Virgin Blue and Etihad currently do not directly compete on any routes". The ACCC will now seek further submissions from the applicants and interested parties in relation to this draft determination prior to making a final decision.

The alliance proposal

The essentially domestic operations of Virgin Blue Group and the long haul international services of Etihad are to be linked, delivering Virgin Blue an extensive virtual network and providing Etihad with extensive behind gateway domestic access. In the process, both carriers will not only have extended networks but they will also be in a much improved position to attack the corporate market, over which Virgin Blue's large competitor, Qantas predominates.

The alliance is designed to allow the two carriers to:

• enter into reciprocal interline agreements;
• codeshare on a freesale basis on each other's networks with favourable pro-rates; and
• offer reciprocal lounge and frequent flyer benefits.

As part of this process, they will also work jointly on a range of other initiatives, including:

• further product alignment;
• joint sales and marketing; and
• airport processes, maintenance and ground handling.

Increased services between Australia and Abu Dhabi

According to the submission, approval of the application will lead to an additional three times weekly V Australia-operated services from Sydney to Abu Dhabi, so that, between them the two alliance carriers will offer double daily services from Feb-2011.

Then, from Feb-2012, V Australia will add a further three times weekly service from Brisbane to Abu Dhabi, via Singapore.

The carriers argued that their ability to operate the alliance codeshares adds flexibility in two ways - increased online connection options and enhanced value added services. For example, all of Virgin Blue's behind and beyond gateway city pairs become available as through services to all of Etihad's points beyond Abu Dhabi.

Round the world service now possible

One extreme example of this connectivity is that V Australia will be able to service Los Angeles over Abu Dhabi - just as Etihad can serve Los Angeles in the opposite direction, over Sydney.

Pricing should be more competitive

An additional impact of that improvement is that separate 'mix and match' fares become possible - meaning that online flights that are part of a favourable code share service are not subject to "double marginalisation".

The draft determination agreed with the applicants that "there are important benefits to consumers from online connections" and that "the Alliance will result in a broader and more integrated network." In doing so, this should stimulate "a more vigorous competitive response from the Qantas Group than would occur absent the Alliance."

Final approvals should be granted soon

The ACCC's announcement is still only a "draft determination", but is almost certain to be approved, as there was no opposition, with most parties in fact strongly supporting the application. Only Qantas opposed the interim exemption for the carriers to market and sell tickets in advance of the final approval - something which was necessary if the alliance were to be effective from the requested date of Feb-2011. Unlike the Air New Zealand alliance approval granted today (where the Commission only approved the application for three years), the ACCC allowed the Etihad arrangement to extend for the requested five years.

The proposal is also subject to approval by the International Air Services Commission (IASC), which is responsible for authorisations where they relate to grants of bilateral air services rights. The IASC has already approved the codeshare agreements between the applicants on a number of routes so that the airlines have been able jointly to price and market their services.

ACCC procedures allow for a "conference" for discussion of issues if any party requests it, but here there would appear no need - so the final determination should be forthcoming at least by early Jan-2011.