The Covid-19 pandemic, like most crises, has sparked a wave of consolidation in the global airline industry. JetBlue Airways and Spirit Airlines plan to merge in the U.S., Avianca and Gol want to create a new South American giant, and, down under, Qantas Airways is trying to acquire charter and contract carrier Alliance Airlines.
That last deal, Qantas’ A$614 million ($426 million) proposed purchase of Alliance, may be on ice after a preliminary statement Thursday from regulators. Australian Competition & Consumer Commission (ACCC) Chair Gina Cass-Gottlieb said the deal could “substantially lessen competition for air transport services to and from regional and remote areas in Queensland and Western Australia,” given Qantas’ existing dominance of the Australian market.
Qantas, including its budget subsidiary Jetstar Airways, is Australia’s largest airline group with a 65 percent share of domestic passenger traffic in April, ACCC data show. Virgin Australia had a 31 percent share and Rex Airlines a little over 4 percent. Alliance and other airlines like it that provide contract flights, including critical “fly-in, fly-out” services for companies in Australia’s vast interior, amount to less than 1 percent of the domestic market.
While Qantas’ overall dominance of the Australian market would be little changed with its acquisition of Alliance, it is flights to smaller destinations and in the “fly-in, fly-out” segment that has the ACCC concerned. “There are already significant barriers for airlines who want to enter or expand their operations in regional and remote areas, including access to pilots, airport facilities and infrastructure, and associated regulatory approvals. The removal of Alliance … is likely to significantly increase these barriers,” Cass-Gottlieb said.
Virgin, for example, contracts with Alliance for flights between Brisbane and remote parts of Queensland. The ACCC raised concerns about whether this partnership would continue under a Qantas-owned Alliance.
The ACCC’s concerns with the Qantas-Alliance deal has some parallels to what many expect from U.S. authorities on the proposed JetBlue-Spirit merger. That combination, despite being in a different country and market segment, would similarly remove a competitor from an already highly-consolidated industry that faces similar barriers to entry. And while U.S. air travel is not as concentrated in a single carrier as in Australia — four airlines, rather than one, control roughly 80 percent of the U.S. domestic market — it is still viewed as one of the more consolidated markets in the world.
The Biden administration has already taken a firm stance against further consolidation in already heavily concentrated key industries, including the airline sector. And the U.S. Department of Justice has a pending lawsuit against JetBlue and American Airlines’ alliance in the northeast. “Capitalism without competition is not capitalism,” President Joseph Biden said in January.
JetBlue, unlike Qantas, has already offered concessions to get its deal done. The New York-based carrier is willing to divest all of Spirit’s assets in Boston and New York — including the eight peak-hour flights at Newark airport Spirit was awarded in July — as well as gates at the Fort Lauderdale airport. However, some Wall Street analysts have suggested that the DOJ may want JetBlue to end its alliance with American in exchange for a merger — something JetBlue executives have so far said is not on the table.
The Avianca-Gol combination differs from both the JetBlue and Qantas deals as the airlines would continue to operate independently under a shared parent company, Abra. The proposal would create a company similar to International Airlines Group or the Lufthansa Group in Europe. However, South American regulators may still weigh in on the proposed cross-border deal.
“There are a significant number of charter operators of different sizes and that makes it an extremely competitive segment,” Qantas Group Executive of Associated Airlines and Services John Gissing said in response to the ACCC’s statement. “We’re confident our acquisition of Alliance does not substantially lessen that competition and we’ll work through the ACCC’s process to support that position and address their initial concerns.”
Gissing cited the regulator’s quick approval of competitor Rex’s acquisition of charter and contract operator National Jet Express in July, and Virgin’s own plans to grow as examples of the competition in the market segment.
The ACCC will accept comments on the proposed Alliance deal until September 1. The regulator plans to issue its final decision, without which the deal cannot move forward, on November 17.
“A competitive and well-functioning aviation sector is fundamental to the Australian economy,” Cass-Gottlieb said.