ACCC resets the clock on Virgin-Tiger deal
Australia’s competition authority the ACCC has restarted the countdown on the Virgin Australia-Tiger Australia deal, setting 24 April as decision day.
It is also dealing with calls by Emirates and Qantas for what could be summarised as
fairness and consistency in relation to approvals for multi airline marketing deals on the Australia-New Zealand market.
Each application carries profound implications for the state of airline competition in Australia and the role of the ACCC in situations where airlines willingly set out to flood the market with excess capacity and wage unsustainable fare wars.
At its most basic the Tiger issue is about whether or not Virgin Australia is permitted to have a second low cost brand in the market similar to Qantas having the low cost Jetstar brand which it devised in 2002-2003 and put into operation in 2004 to counter the expansion of what was then branded as Virgin Blue.
In reality the issue is more complex, and has been called into doubt by the ACCC over competitive questions which have caused it to call for additional submissions from Virgin Australia, which it received on 11 April.
Virgin Australia is seeking to buy a 60% stake in Tiger Australia’s business and run it as an entirely separate brand with no marketing linkage to its full service product, which differs from the Qantas-Jetstar arrangement in one material element in that the latter is co-marketed with the Qantas product offering.
Tiger Australia’s Singaporean owner, Tiger Airways Holdings, has made it clear that the losses experienced by its Australian franchise are unsustainable.
It may close Tiger Australia if Virgin Australia is unable to finalise the purchase through lack of regulatory approval, and the ACCC has acknowledged that this possibility is of considerable importance to its deliberations, causing it to pause the previous target date of 18 March for a decision on the Virgin Australia application.
The core issue in the trans Tasman applications and submissions being heard by the ACCC is whether or not it should compel airlines to continue to offer excessive capacity where the airlines start a fare war which however damaging to the parties, results in substantial and longer term low fare benefits to the Australia-New Zealand market.
Or in short, should the ACCC prevent airlines from finishing something they started?
When the ACCC approved the Qantas-Emirates business partnership which took effect on 31 March it excised from the approval the proposed ‘coordination’ of fares and capacity on the trans Tasman routes by both carriers. It required them instead to maintain their current service levels, which are widely known in the airline game to be variously ruinous or very marginal.
Since then the dominant trans Tasman combination, between Air New Zealand and Virgin Australia, which has the approval of competition authorities on both sides of the Tasman, has sought permission to ‘vary’ its capacity obligations between Australia and New Zealand, which has now been objected to by Emirates and Qantas on the basis that the ACCC’s ruling on this issue should be consistent for all the interested parties.
In simple English, that is the same as the four key competitors on the Tasman all calling ‘enough’ and pleading for permission to act in concert within their partnerships to end the bleeding by cutting the number of flights they offer, which in turn would force fares to rise to what the airlines regard as ‘sustainable’ levels.
Which also, in simple English, means rigging the market, which is precisely the type of anti-competitive activity the ACCC is charged with preventing.
This sets up the ACCC to have to choose between forcing carriers to continue losing money (as they claim) or allowing them to conspire to screw the market.
It is an incredibly testing dilemma for the competition regulator, because if the airlines were to be allowed to slash capacity and raise fares they may inadvertently collapse demand for air travel between Australia and New Zealand, which is currently running at unprecedented levels and generating substantial economic benefits on both sides of the Tasman by stimulating tourism and its dependent jobs.