ACCC toughens position on Qantas’ Alliance stake

The ACCC has toughened its position on Qantas’ acquisition of a stake in smaller airline Alliance.

Alliance Airlines’ managing director Scott McMillan some of his aircraft engineers at their base in Brisbane Airport. Picture: Lyndon Mechielsen

The competition watchdog has toughened its position in relation to Qantas’s 19.9 per cent stake in smaller airline Alliance, warning the carrier it will enforce the law against any anti-competitive behaviour.

The Australian Competition and Consumer Commission provided an update on Monday on the now 16-month investigation in response to queries from various stakeholders.

The ACCC said with the aviation industry in a state of major upheaval, it was now more than ever concerned that competition by smaller airlines was not hindered.

Qantas bought the stake in Alliance on February 1, 2019, and flagged its intention to eventually take over the “well-managed” Brisbane-based operator.

The acquisition sparked the ACCC’s interest due to the fact it was completed without seeking clearance from the watchdog.

ACCC chairman Rod Sims said for that reason the watchdog was treating the matter as an enforcement investigation rather than a standard merger review.

“The Australian aviation industry remains highly concentrated and it is crucial that competition provided by smaller airlines is maintained long-term,” Mr Sims said.

He noted that Alliance was an important and close competitor to Qantas, particularly in regional markets and for fly-in, fly-out mining customers.

“The ACCC has been closely scrutinising the effects of the acquisition of this shareholding by Qantas. Acquiring a strategic stake in a close competitor in such a concentrated market raises clear competition concerns,” Mr Sims said.

“We will consider enforcement action if there is evidence the Qantas shareholding is compromising Alliance’s ability to be a strong competitor to Qantas now and in the future.”

The ACCC investigation was focused on the competitive dynamic between Qantas and Alliance, which through a codeshare with Virgin Australia, was the Flying Kangaroo’s only competitor on routes between Brisbane and Gladstone and Bundaberg.

Qantas had previously said it would not seek to influence decisions by Alliance by seeking a board position and Mr Sims said that was being watched closely following Mr Joyce’s stated intention of increasing the shareholding.

“Our current view is that any further increase in Qantas’s stake in Alliance is very likely to raise significant competition concerns under the Competition and Consumer Act,” he said.

Qantas responded to the ACCC announcement, saying it continued to co-operate with the investigation.

A statement from the airline rejected the suggestion its 19.9 per cent share had any impact on competition, reinforcing that its stake was “entirely passive”.

It also noted that Alliance had expanded in competition with Qantas and others in the charter market.

“Qantas acknowledges the importance of strong competition, which has benefited travellers and made airlines better,” the statement said.

“Australia has one of the most pro-competitive aviation sectors in the world, with fewer barriers to entry than most other countries.”

Alliance managing director Scott McMillan said they had read the ACCC announcement with interest but declined to comment further.

Alliance recently reported to the ASX it would reward eligible staff members with $1000 worth of shares, in a sign of the airline’s financial strength despite the challenges of the COVID-19 crisis.

The charter, regular-public-transport and FIFO operator expected to report a before tax underlying profit of $40m for the 2020 financial year.

Qantas has not provided guidance for its annual result after being forced to stand down more than 20,000 staff and ground most of its fleet due to crippling travel restrictions.

A note from market analysts at Credit Suisse said it seemed clear the ACCC had taken a dim view of the acquired stake and virtually ruled out the idea of Qantas purchasing more of Alliance.

“Therefore the notion of a takeover has been given what appears to be very close to a provisional red light,” said the Credit Suisse note.