Virgin Australia is seeking approval to deepen its partnership with Virgin Atlantic on flights between Australia and the United Kingdom.
In an application to the Australian Competition and Consumer Commission (ACCC) dated June 3, Virgin Australia said the tie-up with Virgin Atlantic was “crucial to the sustainable operation” of its nonstop flights between Australia and Hong Kong and would create a “compelling Virgin-to-Virgin brand proposition”.
The long-term cooperation agreement involved the two carriers working together on joint pricing, inventory management, scheduling coordination, network planning and marketing, as well as product alignment, airport operations, joint procurement and tenders for corporate contracts.
Also, the two carriers said they would extend the existing codeshare and reciprocal frequent flyer benefits, which would improve access to and pricing of codeshare inventory and provide passengers with a strengthened loyalty proposition.
The pair was seeking interim authorisation from the ACCC to begin cooperation ahead of a final determination on the proposed alliance.
The partnership would build on an existing codeshare agreement that was established in early 2018, where Virgin Atlantic placed its VS airline code on Virgin Australia’s nonstop flights from Australia to Hong Kong and Los Angeles. Virgin Atlantic also codeshares on a number of Virgin Australia’s domestic services.
Similarly, Virgin Australia placed its VA airline code on Virgin Atlantic-operated nonstop flights from Hong Kong and Los Angeles to London Heathrow.
The application said Virgin Australia and Virgin Atlantic had a combined market share of about three per cent in the Australia-United Kingdom/Ireland market, compared with about 40 per cent held by the combined Emirates/Qantas alliance.
The two carriers told the ACCC they flew 13,000 codeshare passengers in 2018, with the figure expected to increase to 18,000 in 2019. This represented 24 passengers daily each way.
The pair said there would be “significant public benefits” from the proposed alliance.
“The proposed cooperation will not result in any detriment and cannot result in a substantial lessening of competition in any market,” the application said.
“The proposed cooperation will allow each of the applicants to better support their services to and from Hong Kong and Los Angeles by increasing passenger traffic on these routes.”
Virgin Australia began nonstop services between Melbourne and Hong Kong in July 2017 with Airbus A330-200s. Nonstop Sydney-Hong Kong flights, again with A330-200 equipment, commenced in July 2018.
The flights are operated as part of an alliance with a number of HNA Group carriers, of which Hong Kong Airlines is one.
Figures included in the application indicated Virgin Australia’s Hong Kong services had average load factors – an industry term to indicate how full the flights are – of about 66 per cent, while its market share sat at about 10 per cent.
“By driving passenger feed, it will assist Virgin Australia to more sustainably operate its Australia-Hong Kong services in competition with Qantas and Cathay Pacific,” the application said.
“More broadly, authorised cooperation and alliances of this kind are crucial to Virgin Australia’s ability to offer an international network and establish itself as a second full service airline for Australian passengers, promoting choice and competition.”
Meanwhile, Virgin Australia’s flights from Brisbane, Melbourne and Sydney to Los Angeles with Boeing 777-300ER equipment are operated as part of a joint-venture alliance with Delta Air Lines.
The application said Virgin Atlantic’s services from London Heathrow to Hong Kong and Los Angeles had load factors of about 85 per cent and 83 per cent, respectively.
Should it be approved, Virgin Atlantic would be Virgin Australia’s third alliance partner on Australia-United Kingdom routes alongside existing partnerships with Etihad Airways (via Abu Dhabi) and Singapore Airlines (via Singapore).
The application said the proposed cooperation with Virgin Atlantic would be complimentary to those existing partnerships, given Virgin Australia had “no influence over pricing” of Etihad Airways’ and Singapore Airlines’ flights.
Also, it said Virgin Australia’s Hong Kong flights were not part of its alliances with Etihad Airways or Singapore Airlines.
Virgin Atlantic last served Australia with its own aircraft in 2014 as part of a London Heathrow-Hong Kong-Sydney routing with Airbus A340-600 equipment.
Its withdrawal left British Airways as the only European carrier flying to Australia with its own aircraft.
The application said the proposed partnership would assist Virgin Atlantic in increasing its market presence in Australia and New Zealand.
“Virgin Atlantic has a single sales representative based in Australia/New Zealand and only conducts minimal sales activities in the region,” the application said.
“The proposed cooperation will enable it to draw on Virgin Australia’s local sales presence to better market its services.
“This, together with opportunities for more efficient inventory management and pricing, is anticipated to attract more connecting passengers to Virgin Atlantic’s services.”
The application said the two carriers signed a heads of agreement on May 24 that outlined the proposed areas of cooperation should the ACCC give the partnership the green light.
This included having metal-neutral policies for routes operated by the two carriers, including the exploration of revenue-sharing opportunities.
Further, the heads of agreement included having Virgin Atlantic codeshare on Virgin Australia-operated flights between Australia and New Zealand.
It also would enable Virgin Australia to codeshare on Virgin Atlantic controlled flights between London Heathrow and other cities in the United Kingdom and Ireland. However, the pair would not cooperate on flights to other destinations in Europe.
Looking further ahead, the agreement also allowed for Virgin Australia to codeshare on Virgin Atlantic flights from other connecting points in the United States, United Kingdom and Ireland on itineraries that included a Virgin Australia flight from Australia.
In January 2019, a consortium that included Virgin Atlantic bought United Kingdom-based regional carrier Flybe for 2.8 million pounds. Flybe, which has five routes from London Heathrow Airport, was expected to be renamed to a Virgin Atlantic brand.
Finally, frequent flyer benefits could include giving members of both airline programs the ability to redeem points for each other’s flights online, rather than through a call centre as is the case currently. The application also raised the possibility of a “reciprocal points upgrade proposition” on each other’s flights.
The application can be read in full on the ACCC website.
