Today, the Australian Competition and Consumer Commission made a final determination, and gave effect to an agreement to authorise the coordination of airline services between Virgin Australia Airlines, the HNA Aviation Group, Hong Kong Airlines and Hong Kong Express Airways for five years.
Background
Titled the ‘Alliance Framework Agreement’, the landmark agreement permits the introduction of new direct services between Australia and Hong Kong and Australia and mainland China by Virgin Australia. Since February, Australia’s second-largest airline announced its plan to establish a new alliance that will be a game changer for travel between Australia and China. Virgin Australia proposed it will commence codeshare arrangements, and co-operate in relation to route planning, sales, distribution and marketing, frequent flyer programs, lounge access and other activities.
Later in March a request for interim authorisation was lodged and approved by the ACCC. Basically, an interim authorisation is described as an exemption the ACCC allows if it is satisfied the public benefit from the arrangement outweighs the public detriment. As seen in this instance, the ACCC may make an authorisation subject to conditions and/or for a limited period of time. Once this is obtained, Virgin Australia may proceed with the agreement without fear of legal action being taken against it under the Competition and Consumer Act 2010 (Cth). While Virgin and HNA Aviation sought a 10-year period of authorisation, the ACCC chose to approve the partnership for five years, which it viewed as appropriate given the “dynamic nature of the aviation industry”. The competition watchdog believes the length of authorisation is consistent with what other analogous airline alliances were given. Following the ACCC’s decision, Virgin Australia began ticket sales for a five day weekly Melbourne-Hong Kong service on July 5.
Outcome
Virgin Australia Group CEO John Borghetti said in a statement the agreement will provide significantly more competition and choice for travellors. Mr Borghetti expressed the international strategic alliance with the three Chinese airlines will help Virgin Australia deliver long-term growth and success. Because HNA Aviation fly nearly 100 million passengers each year, there are significant benefits for the Australian tourism industry and broader economy.
Similarly, ACCC Commissioner Roger Featherston agreed the alliance will reap significant public benefits as a result of the new services. Mr Featherston said the alliance is unlikely to result in any significant public detriment. In the ACCC’s final determination, the applicants explained what public benefits the alliance will offer in order to pass the ACCC’s net public benefit test. Some of its arguments were:
- Direct access to Hong Kong and a large number of destinations across mainland China;
- Improved customer experience, for example, the convenience of travelling under a single itinerary;
- Improved loyalty program benefits for Virgin and HNA Group;
- Increased customer choice and competition with incumbent carriers;
- Stimulation of tourism; and
- Greater ability to realise efficiencies and cost savings.
Further, Mr Featherston said there was no material overlap between direct flights operated by Virgin and any of the other airlines in the short to medium term without the alliance in place. In relation to the issue of codeshares or interline agreements with other airlines, the ACCC proposed to impose a condition in the authorisation. The condition stated the four airlines were prohibited from “entering into or give effect to any contract, arrangement or understanding which has the effect of preventing or restricting any of the Alliance airlines from entering into the interline and/or codeshare agreements with any other airline.” Instead, the four airlines will codeshare on each other’s services between Australia and mainland China and Hong Kong, including flights via New Zealand and on routes within HNA Airlines’ domestic networks. Also, customers of Beijing Capital Airlines, Hainan Airlines, Hong Kong Airlines and Tianjin Airlines will be able to book travel on Virgin Australia’s domestic and trans-Tasman network.
Final Thoughts
Currently, the determination is open for review. If no application for review is made to the Australian Competition Tribunal, the Alliance Framework Agreement will come into force on 1 September 2017.
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