ACCC blocks Virgin Blue, Air New Zealand alliance

[Slats7]

ACCC blocks Virgin Blue, Air New Zealand alliance | The Australian

THE Australian competition regulator said today it planned to block Virgin Blue's planned alliance with Air New Zealand.

The Australian Competition and Consumer Commission is concerned the tie up could hurt competition on trans-Tasman routes.


"The ACCC considers that the alliance is likely to reduce competition in the market for trans-Tasman air passenger services," ACCC chairman Graeme Samuel said.


Under the planned alliance, the two airlines would take a co-ordinated approach to a range of issues including pricing, revenue management, schedules, capacity and routes flown.






More bad news for VBA.

 

[notzac]

They really can't win..!

Though I don't understand how it would materially affect competition, seeing as there are 7 carriers operating trans-tasman services (QF, JQ, DJ, NZ, EK, LA, AR ... have I missed any?)

 

[samh004]

I would’ve thought it would help lower QF’s sometimes ridiculous fares if two airlines worked together against them.

I’m feeling very sorry for DJ right now. It’s 2 blows to 2 key routes, I don’t see how they’re able to compete without a massive cash injection and buying a hundred more planes in this case.

I wonder if the next idea to be blocked will be the tie-up with Etihad. Oh how that’ll look…

And on the other hand, if they can’t make inroads to LAX or TT, Velocity is becoming much less valuable.

 

[yohy?!]

QFs government lobbyists strike again?

 

[MarcB]

Geez - combined with the article in the Fin Review today indicating that the US Anti-trust agency has blocked V Australia's tie up with Delta, things aren't looking good.

 

[pauly7]

They really can't win..!

Though I don't understand how it would materially affect competition, seeing as there are 7 carriers operating trans-tasman services (QF, JQ, DJ, NZ, EK, LA, AR ... have I missed any?)

The number of carriers is less significant than the fact you have NZ (the number 1 carrier across the ditch) crying poor and trying to tie up with the number 3 carrier. The combined power and share is what the ACCC would be more concerned about.

They act in the interest of the consumer - and unsurprisingly there is little benefit being presented here.

TT will be cheering! They campaigned against it... I'm not sure if QF even bothered lodging a protest (correct me if I'm wrong) - probably thought it would get knocked back anyway....

So I'm not really surprised.

 

[pauly7]

I would’ve thought it would help lower QF’s sometimes ridiculous fares if two airlines worked together against them.
.

I think this decision has more to do with NZ than DJ to be honest. Why would you let the number 1 player tie up with another relatively strong player?

Do note that on this route QF is only operating as a number 2 player and their pricing reflects their 2 brand strategy - pulling premium and corporates onto QF metal and pushing the rest onto JQ.

So their pricing is structured as such. You have to take JQ pricing into consideration when you look at it like that and they of course are very competitive.

 

[samh004]

"This means that more than one million passengers per year may be adversely affected by the removal of competition between Virgin Blue and Air New Zealand."

I love that. Maybe the members that decide these things from the ACCC should take a ride on Pacific Blue flights before they make decisions. They’re usually half empty, so I don’t think they’re that close to affecting a million pax a year. Air NZ might, but having a tie-up with DJ isn’t going to give them a reason to raise prices.

And yeah, I guess it’s about Air NZ, not DJ, but it’s much like QF and JQ. I’m sure if they joined together Pac Blue would become a much cheaper alternative, in the same way that JQ is. It might be 2 companies, but it’s the same system as being employed by QF.

So I'm not really surprised.

If you’re not surprised, how would you suggest they got the deal through? What concessions would have to be made to ensure they could partner with Air NZ AND improve the prices across the ditch, which we all know would happen.

 

[pauly7]

I love that. Maybe the members that decide these things from the ACCC should take a ride on Pacific Blue flights before they make decisions. They’re usually half empty, so I don’t think they’re that close to affecting a million pax a year. Air NZ might, but having a tie-up with DJ isn’t going to give them a reason to raise prices.

And yeah, I guess it’s about Air NZ, not DJ, but it’s much like QF and JQ. I’m sure if they joined together Pac Blue would become a much cheaper alternative, in the same way that JQ is. It might be 2 companies, but it’s the same system as being employed by QF.

I think you will find DJ are operating at far higher than 50% loads on TT flights. I'm sure crazydave would strongly refute your statement!

And if you read the intention if the tie in - it was to normalize the service levels and pricing between the two so I'm not sure where your speculation about moving DJ down market is coming from? Especially given the well publicized strategic direction of the wider group....

 

[samh004]

I think you will find DJ are operating at far higher than 50% loads on TT flights. I'm sure crazydave would strongly refute your statement!

And if you read the intention if the tie in - it was to normalize the service levels and pricing between the two so I'm not sure where your speculation about moving DJ down market is coming from? Especially given the well publicized strategic direction of the wider group....

It might be closer to 75% I suppose, artistic license. But the flights I were on weren’t anywhere close to being full. Maybe it was just 2 bad days though.

As for my speculation, it would make much more sense to split travellers into cheap and expensive, though maybe they’re not into that. Ultimately, I’m for the partnership, I want my DJ membership/status to mean something, but the way this is going now, status with QF will be the only way I can get any value, and that’s not promoting competition, that’s just that all the potential for those 2 airlines to make something that can actually compete, has been knocked out.

and I say status because these days that’s what its about. People earn and they redeem and they don’t always just choose the cheapest, but they look at all the benefits and potential cost savings. The sheep are no more, well here at least, and maybe the ACCC still has their blinkers on and thinks that’s the only way you can look at pricing flights, who’s cheapest.

 

[jakeseven7]

It might be closer to 75% I suppose, artistic license. But the flights I were on weren’t anywhere close to being full. Maybe it was just 2 bad days though.

Perhaps rely on facts not a sample of 2 flights with a dash of artistic licence mate!

As for my speculation, it would make much more sense to split travellers into cheap and expensive, though maybe they’re not into that. Ultimately, I’m for the partnership, I want my DJ membership/status to mean something, but the way this is going now, status with QF will be the only way I can get any value, and that’s not promoting competition, that’s just that all the potential for those 2 airlines to make something that can actually compete, has been knocked out.

Speculate away - but thats not what NZ/DJ presented or planned to do - and that's the most important thing that determined the response they got. PS I don't think your ideas are bad at all, but they go in the opposite direction of what DJ especially wants to do. Have a look at what they proposed to do.

and I say status because these days that’s what its about. People earn and they redeem and they don’t always just choose the cheapest, but they look at all the benefits and potential cost savings. The sheep are no more, well here at least, and maybe the ACCC still has their blinkers on and thinks that’s the only way you can look at pricing flights, who’s cheapest.

I would say a huge majority go for cheapest. And that therefore governs ACCC. Sometimes its easy to get caught up in status etc especially on here!

The ACCC have acted in the interest of preserving rigour in competition and as a previous poster pointed out - why would you let the market leader collude with a strong 3rd player. I agree with your and other comments that this is more about NZ than DJ. It doesn't make much sense.

 

[samh004]

Perhaps rely on facts not a sample of 2 flights with a dash of artistic licence mate!

What are your thoughts on the withdrawal of Pacific Blue domestic services then? I know they weren’t doing well, but surely that must have had a tie in with this alliance, and with no alliance now…

And don’t call me mate!

 

[jakeseven7]

What are your thoughts on the withdrawal of Pacific Blue domestic services then? I know they weren’t doing well, but surely that must have had a tie in with this alliance, and with no alliance now…

And don’t call me mate!

Haha my thoughts - big WHOOPSIE by DJ.

I can only speculate but maybe they thought they were home and hosed with the tie up with NZ so pulled the plug on the loss making Pac Blue domestic ops as quickly as they could to stem the red ink.

I have no idea how much the domestic ops were feeding into the TT routes though... I guess DJ are about to find out!!

 

[Ricardo]

Based on what has happened to DJ over the past few days, and the current share price on the ASX I would struggle to see a medium term future for DJ in Aust. I mean Branson can only prop them up so much. They also need to decide on what direction they are going to take, with regards to what product and market sector they are aiming for. And they need to do this QUICKLY in my opinion or they might not last.

 

[notzac]

That's a little melodramatic, wouldn't you say?
Small reminder that the Virgin Blue Group returned an operating profit this year, without the benefit of any alliances. I'd say they'll be fine long term (though if the alliance rejections are permanent they could be in for a rough ride).

 

[yohy?!]

based on what has happened to dj over the past few days, and the current share price on the asx i would struggle to see a medium term future for dj in aust. I mean branson can only prop them up so much. They also need to decide on what direction they are going to take, with regards to what product and market sector they are aiming for. And they need to do this quickly in my opinion or they might not last.

.........lol:!:

 

[pauly7]

.........lol:!:

Lol +1

I for one might buy some DJ shares... They can hardly get more bad news only way is up

 

[samh004]

Lol +1

I for one might buy some DJ shares... They can hardly get more bad news only way is up

At least that’s true, best time to buy is low…

 

[dajop]

So what's better for competition? One really strong player and two weaker players, or two really strong ones? On the basis of this decision, should QF be forced to divest Jetstar TT services, because that's anti competitive the one airline owning two competitors? One could start some interesting philosophic arguments.

What is the process from here, is there an appeal process? Noting on appeal to the Australia Competition Tribunal in 2005, a proposed alliance between Qantas and Air NZ was allowed(which was of course killed by the NZ regulator and high court) citing :

The Tribunal found that while Qantas and Air New Zealand would be likely to comprise a significant share of the market immediately following the commencement of the Alliance, the presence of Pacific Blue and Emirates would constrain Qantas and Air New Zealand's ability to raise prices or reduce capacity in the longer term.

So the presence of Emirates and Qantas/Jetstar has no constraining ability?

 

[pauly7]

So what's better for competition? One really strong player and two weaker players, or two really strong ones? On the basis of this decision, should QF be forced to divest Jetstar TT services, because that's anti competitive the one airline owning two competitors? One could start some interesting philosophic arguments.

The QF group combined have about 33% share of TT traffic - hardly a dominant position to be forced to divest.... NZ has about 38% and DJ 17%. Thus with the tie up you are effectively creating a player with circa 55% market share - now that's dominant. Probably a key sticking point for the ACCC in addition to their other comments.

One could argue the current situation (along with Emirates at about 13%) is perfectly competitive - all players have scale and there is a good spread of share and business models / pricing to choose from....

What is the process from here, is there an appeal process? Noting on appeal to the Australia Competition Tribunal in 2005, a proposed alliance between Qantas and Air NZ was allowed(which was of course killed by the NZ regulator and high court) citing :.

The process is that now DJ and NZ are scrambling to clarify/supplement and even ammend the agreement and get it to the ACCC before Sept 24 - after this they will consider revisions and hand down a final ruling.

So the presence of Emirates and Qantas/Jetstar has no constraining ability?

Of course they do - but I would guess that creating a super player with 55% share is probably a stretch.... Now if DJ and Emirates had proposed a hookup - I think that would have been waved through with smiles....