ACCC issues draft determination approving extension of Virgin-SIA alliance for five more years

Singapore Airlines and Virgin Australia.
Singapore Airlines and Virgin Australia formed an alliance in 2011.

Virgin Australia and Singapore Airlines look set to renew their alliance for a further five years after a draft ruling from competition regulator gave extending the tie-up the green light.

The Australian Competition and Consumer Commission (ACCC) draft determination published on Thursday said the partnership “had resulted, and is likely to continue to result, in material public benefits” including new routes, more online connection options and the promotion of competition.

Further, the ACCC said the partnership was also likely to bring about “small public benefits in the form of operational and other efficiencies which may be passed through to consumers in the form of lower fares or better services”.

“The ACCC is satisfied that the Alliance is likely to result in a net public benefit and proposes to grant authorisation,” the draft determination said.

SIA and Virgin’s application for renewal, lodged in May 2016, had called for re-authorisation for a 10 years.

However, the ACCC said five years was a more appropriate term, given the “ongoing evolution of services between Australia and the United Kingdom and Europe and between Australia and Asia, including Virgin Australia’s proposed expansion of services into Asia, and the dynamic nature of the aviation industry”.

“The ACCC considers it appropriate to review the authorisation earlier than the requested 10 years. For this reason, the ACCC proposes to grant authorisation for five years,” the ACCC said.

Virgin Australia general manager for alliances Phil Squires welcomed the ACCC draft decision and said the alliance with SIA offered choice and competition for Australians with better connection times, more direct routes and innovative loyalty options.

“Our alliance with Singapore Airlines not only stimulates competition on routes from Australia to Asia and Europe but also promotes competition for Australian passengers generally by providing them with a viable alternative choice of carrier for their combined domestic and international travel,” Squires said in a statement.

While Virgin does not operate to Singapore with its own aircraft, the airline has proposed mounting flights to Beijing and Hong Kong from June 1 2017 in partnership with Hainan-based HNA Group.

The ACCC said SIA’s flights to various Asian points from Australia via Singapore “do not provide a significant competitive constraint”.

“Where both airlines operate indirect services to destinations in Asia, there are a number of rival airlines providing services to those destinations which are likely to constrain the ability of the Applicants to raise prices or reduce services,” the ACCC said.

First approved in 2011, Virgin and SIA have been able to work together on schedule planning, capacity, pricing, revenue management, sales, distribution and marketing, frequent flyer offerings as well as purchasing and procurement.

SIA is also a major shareholder of Virgin and has a seat on the Australian carrier’s board.

In their May application, the two carriers said they would develop systems to better recognise their high value guests travelling on each other’s networks and flagged the use of data analytics to offer an improved customer proposition and services to customers, helping increase passenger numbers and earned revenue.

Submissions to the ACCC in response to the draft determination were due by September 9.

Meanwhile, the ACCC draft determination noted it had yet to receive an application from Virgin and HNA seeking approval to form an alliance.