Qantas and Alliance Aviation Services have terminated their acquisition agreement, signed in May 2022. Australia’s competition regulator, ACCC, formally opposed the deal in April of this year.
ACCC Objects to Qantas Acquisition of Alliance
Qantas and Alliance are key suppliers of air transport services to mining and resource companies who need to transport ‘fly-in fly-out’ workers in Western Australia and Queensland. After investigating the proposed acquisition, the ACCC concluded that the transaction would substantially lessen market competition to supply air transport services to Western Australia and Queensland resource industry customers.
“We consider Alliance to be an important competitor to Qantas, and the removal of Alliance is likely to substantially lessen competition threatening increased prices and reduced service quality for customers,” ACCC Chair Gina Cass-Gottlieb said. “Qantas and Alliance currently strongly compete with each other in markets where there are few effective alternatives. The proposed acquisition would combine two of the largest suppliers of charter services in Western Australia and Queensland. Flying workers in the resource industry to and from their worksites is an essential service for this important part of the Australian economy, so it is critical that competition in this market is protected,” Ms Cass-Gottlieb said.
ACCC Determines Alliance is a More Effective Competitor on its Own
The ACCC also received feedback that customers value Alliance as an effective competitor.
“For many customers, Alliance is the preferred supplier due to its large fleet capacity, customer-centric approach and high-quality service offerings, including having the highest on-time-performance in the industry and demonstrated flexibility and willingness to meet customer needs,” Ms Cass-Gottlieb said. “Alliance doesn’t sell seats on major passenger routes, so many Australians may not have heard of them, but it is one of Australia’s most significant airlines, with 70 aircraft currently and more on order. Combining such an important player with Australia’s largest airline, Qantas would be likely to substantially lessen competition and is something we oppose.”
The ACCC reviewed the level of competition provided by other airlines, such as Virgin Australia and National Jet Express (recently purchased by Rex), and other smaller market participants. The regulator determined that it was not likely a new or existing airline could expand quickly enough to compete at scale.
“Qantas will face limited competition if allowed to acquire Alliance because most other airlines lack the right aircraft, fleet size, or capabilities needed to compete effectively,” Ms Cass-Gottlieb said. “Airlines wanting to enter or expand at scale, face a combination of barriers, including incumbency advantages, the need to establish a reputation for providing a reliable service, access to and training of air crew and engineers, access to suitable aircraft and infrastructure, and the significant regulatory requirements to fly. This combination of factors makes it very difficult for smaller airlines to win significant customer contracts and grow their business,” Ms Cass-Gottlieb said.
Qantas & Alliance Background
Qantas operates regular passenger transport services in all Australian states and territories and contracted private charter flight services to customers, mostly in Queensland and Western Australia.
Alliance is an aviation services company based in Brisbane, Townsville, Cairns, Perth, and other locations. It specializes in providing private charter flight services to corporate customers and aircraft leasing and associated services to other airline customers.
Qantas currently wet-leases 18 Embraer E190s from Alliance with the option to eventually lease up to 30 aircraft.
On 1 February 2019, Qantas announced it had acquired a 19.9% holding in Alliance Aviation. In April 2022, the ACCC decided not to take enforcement action against Qantas’ acquisition of the 19.9% holding in Alliance. On 5 May 2022, Qantas announced that it had agreed to acquire the remaining shares in Alliance that it does not already own.
Fleet Efficiencies and Customer Benefits
At the time of the announcement, then Qantas CEO Alan Joyce said acquiring the remaining shares in Alliance would mean QantasLink could better compete in the charter segment, especially given the shared fleet type of Fokker aircraft.
“Alliance’s fleet of Fokker aircraft are perfect for efficiently serving resources customers in WA and Queensland. They also have a big inventory of spare parts that would significantly extend the practical life of a combined fleet of around almost 70 Fokkers,” Joyce said. “Keeping these aircraft operating reliably for longer than either carrier could achieve by themselves will help keep costs down, which is ultimately good news for charter customers. There are also benefits from bringing together our operations planning and training facilities.”
“The resources sector continues to grow and any new tender for airline services will be very competitive. It makes a lot of sense for us to combine with Alliance to improve the services we can offer, which is a positive for both airlines as well as the traveling public,” Joyce added. “We’ve opened up several new passenger routes using up to 18 of Alliance’s E190s, so bringing all 33 of these aircraft, plus their crews, into the Qantas Group would really expand what we could achieve.”
Joyce also highlighted the customer benefits of the two companies combining. “We plan to extend our program of guaranteed lower fares for residents in those few communities where Alliance operates its own passenger services, as well as access to our Frequent Flyer program,” he said.
Qantas and Alliance Agree to Continue Collaboration
Qantas has faced significant pressure from the ACCC for its business practices. In this current climate, the two companies say they can find no path forward for the deal.
Qantas currently has 27% of the total charter market in Australia. The airline will retain a 20% share of Alliance and continue working as a charter services provider with Alliance Aviation. The agreement between Qantas and Alliance includes Alliance operating up to 30 E190s for the Qantas Group. Qantas has agreed to exercise options for four additional E190 aircraft under their agreement, which will bring the E190 fleet to 26, with four options remaining.
Qantas Group Executive of Associated Airlines and Services John Gissing said: “Alliance is an important partner for the Qantas Group and the E190s have helped us open new routes across Australia. These four new aircraft will provide additional capacity and connectivity in the domestic market.”
The new aircraft are expected to join the Qantas fleet in April 2024.
Alliance Managing Director Scott McMillan said: “Despite the outcome of the transaction, we look forward to continuing our long-standing and productive relationship with Qantas.”