LAST week’s decision by the Australian Competition and Consumer Commission (ACCC) to block the takeover of Alliance Airlines by Qantas Airways will likely have struck a note of fear into the hearts of corporate Australia’s dealmakers. While ACCC scrutiny of any merger or acquisition is always to be expected, over the years it has been very rare for the Commission to actually knock back an application, with submissions generally able to succesfully convince the regulator how minimal any impact on competition will be.
The Qantas acquisition of Alliance Airlines was, therefore, probably seen as a lay-down misere by QF when, almost exactly 12 months ago, it announced a takeover of the 80% of the charter operator it didn’t already own. Qantas had already bought a 19.9% stake in Alliance in early 2019 – the maximum it could hold without launching a takeover bid – but it must be admitted that the complexities of the aviation charter market did indicate some possible hurdles.
Although Qantas is now Alliance’s biggest customer, through the Embraer E175 short-haul jets it wet leases from the charter provider, there is also an extensive and longstanding relationship between Alliance and Virgin Australia, which have had an ACCC-authorised Charter Alliance Agreement together since 2017. With exquisite timing, they lodged an application to renew this pact just three weeks after Qantas lobbed its full takeover bid for Alliance, which must have definitely muddied the competition waters.
A sticking point for Qantas must be the time it has taken for the ACCC to make its final ruling, with the decision in limbo for almost a year. The Commission’s update noted that it spent a total of 100 days looking at the issue, a huge investment of resources, so the decision to reject the deal certainly wasn’t made lightly. As Shakespeare’s Macbeth noted when considering the murder of the king, “if it were done, then ’twere well it were done quickly” – and the long period of ACCC consideration of the Qantas-Alliance takeover must have been extremely frustrating. The Commission initially issued a formal Statement of Issues on the matter in August last year, in which it foreshadowed making a final decision in mid-November. That was delayed until 01 December, then until 20 March, and once again for a further month until the final ruling was handed down on 20 April.
Explaining the decision, ACCC Chair Gina Cass-Gottlieb noted that “Qantas and Alliance currently strongly compete with each other in markets where there are few effective alternatives”. She confirmed that the ACCC had received considerable feedback as to Alliance’s participation in the market as a “particularly vigorous and effective competitor… combining such an important player with Australia’s largest airline, Qantas, would be likely to substantially lessen competition and is something we oppose”.
Qantas executives must have hit the roof when they heard, with the company immediately announcing it would urgently seek a “please explain” meeting with the ACCC. QF also noted that since it had announced its May 2022 intention to take over Alliance, Rex Airlines had acquired charter operator National Jet Express from Cobham Aviation in “a transaction that received ACCC clearance within 11 days”.
While there’s likely to be plenty of table-thumping at any meetings between Qantas and the ACCC as a result of the decision, the question that the aviation sector will be considering is what the ramifications are for other tie-ups which are also currently on the Commission’s plate.
These include:
- an extension of authorisation for British Airways, Qatar Airways and Iberia to coordinate air passenger services on routes between Australia and the UK/Europe. The ACCC has issued a draft determination and interim authorisation in favour of this pact, but is still undertaking a public consultation on the ruling with a view to issuing a final determination next month.
- the aforementioned Virgin Australia and Alliance Airlines charter agreement. The ACCC issued a draft determination opposing the deal last October, and the extensive public consultation since has resulted in a further joint submission in March where Virgin and Alliance proposed that they be allowed to continue coordination but only on existing contracts, all of which will expire within five years. The ACCC says it expects to make a final determination within the next few weeks.
- the recently concluded ACCC approval of coordination between Qantas Airways and Jetstar covering the “Jetstar Pan-Asia” strategy. Rather than authorising the pact for 10 years as requested by the airlines, the Commission’s final decision will see it required to be renewed in 2028.
- the proposed one-year extension of coordination on the China route between Qantas and China Eastern Airlines.
- the request by Qantas and Emirates to extend and deepen their longstanding and wide-ranging alliance for up to 10 more years.
Qantas and Emirates both appeared to be very confident of a renewal of their agreement in late January, with executives from the carriers reportedly expressing their delight at the smooth renewal process in several public forums. However that all changed with a last-minute submission by the Australian Federation of Travel Agents providing what many saw as some long-overdue full and frank feedback on the QF-EK, QF-MU and QF-JQ proposals.
Most interestingly, rather than issue a draft determination on the Qantas deals with Emirates and China Eastern, the ACCC has departed from its usual practice with such announcements and only announced an “interim authorisation” for the alliances – effectively maintaining the status quo without making any commitments – while it continues to ruminate on the decision. Read into that what you may, but it’s another indication that deep consideration is going into these possible renewals.
The clock is definitely ticking, with the Commission’s own timetable indicating expectations it will make its highly anticipated draft ruling on the Qantas/Emirates alliance by the end of this week. And whatever that decision is, there’s no doubt that any complacency about future coordination and cooperation proposals between airlines has well and truly vanished, with the travel trade earnestly hoping the ACCC takes notice of the issues raised by AFTA in its submissions.
