QANTAS: Purchase of Alliance Aviation denied by ACCC

The Australian Competition and Consumer Commission (ACCC) is set to oppose the acquisition of Alliance Aviation Services Ltd by Qantas. Alliance is primarily a supplier of FYFO (Fly-in-Fly-out) services for mining and resource companies, in Queensland and Western Australia. Qantas also supplies these kind of services to the same market, so the acquisition would markedly increase their presence in the sector.

“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.”

Gina Cass-Gottlieb, ACCC Chair

After completing an investigation, the ACCC thinks the purchase of Alliance by Qantas will substantially lessen competition in the markets where they supply FYFO services:

“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,”

Gina Cass-Gottlieb, ACCC Chair

Qantas of course doesn’t agree

In a media release asking for more information and a meeting with the ACCC, Qantas states:

Since Qantas announced it had reached an agreement to fully acquire Alliance in May 2022, competitor Rex has acquired charter operator National Jet Express from Cobham Aviation, a transaction that received ACCC clearance within 11 days, and Virgin Australia has been clear about its plans to expand its own resources flying. Several other airlines and aviation businesses also offer charter services.

Qantas Media Release 20 April 2023

… which ignores the entire notion of market power, given that Qantas runs operations on a scale only imagined by the other airlines named. But that is not for me to argue. I’m sure the ACCC is perfectly able to explain this to Qantas if they get their requested meeting.

What the ACCC says

The ACCC says that it had a careful look at the level of competition of other airlines such as Virgin Australia and National Jet Express (recently purchased by Rex), and smaller market participants. It found that the ability for these smaller players to expand to a size that would fill the gap in competition arising if the acquisition went ahead would be close to impossible as they lack the right aircraft, fleet size or capability to compete. Meaning that Qantas would face much more limited competition.

More nuance

The ACCC is going to have to provide a very nuanced argument, as it already allows Qantas to wet-lease 18 Embraer E190s from Alliance with the possibility of expanding up to 30 aircraft.

Background

As of 1 February 2019, Qantas had acquired a 19.9% holding in Alliance Aviation. In April 2022, the ACCC decided not to take enforcement action against Qantas’ acquisition, meaning that it did not oppose that transaction.

In May 2022, Qantas announced it had agreed to acquire the rest of the shares in Alliance. And that act prompted the current inquiry.

2PAXfly Takeout

I don’t pretend to understand the mysteries of competition law or the workings of the ACCC. However, I do know that large companies do seek advantage by moving closer to a monopoly situation to improve their market share and profitability.

Personally, I think Qantas probably thought this was a stretch, but is prepared for a fight. The FYFO and charter area, Alliance’s speciality, is quite profitable, so I can see why Qantas wants a bigger piece of that action.

Qantas doesn’t give up easily. It closed down its whole international operations to make a point to unions back in 2011. I would expect Qantas and Alliance to fight this decision hard. You can read both the ACCCs and the Qantas media release for more information.

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