Virgin-Alliance regional flights partnership gets green light

Virgin Australia’s commitment to servicing regional routes has scored a major boost as Rex firms up its capital city network.

Alliance Aviation’s first Embraer 190 arriving in Brisbane on October 29. It is expected to be used on regional routes operated by Alliance for Virgin Australia. Picture: Lyndon Mechielsen

Virgin Australia’s plan to have partner Alliance operate up to 41 regional routes on its behalf has been given the green light by the competition watchdog.

The Australian Competition and Consumer Commission said it would grant interim authorisation for the partnership because it would likely result in a public benefit.

The approval came as Regional Express Airlines updated the ASX on its plan to finance the launch of domestic operations with a fleet of ex-Virgin Boeing 737s.

As flagged last month, Rex has signed an agreement with PAG Asia Capital to invest up to $150m.

The first $50m comprising of senior secured convertible notes would be drawn down by January 2021, with the remainder to be available over the next three years.

The funding will allow Rex to launch Melbourne-Sydney services from March 1 using three 737s, with five aircraft to be used on that route and others by Easter.

Just as the Rex flights would increase competition on the “Golden Triangle”, the ACCC said the Virgin-Alliance partnership would facilitate a more competitive landscape in regional Australia.

Commissioner Stephen Ridgeway acknowledged the need for quick action by the watchdog, to allow Virgin Australia to compete with Qantas, which was already ramping up its network in response to easing border restrictions.

“Co-operating to provide services on these regional routes will assist Virgin Australia and Alliance Airlines to efficiently manage capacity and quickly respond to increases in demand as travel restrictions ease,” Mr Ridgeway said.

“We acknowledge there is some urgency to this matter. A delay in Virgin Australia fully re-establishing its network, while other airlines are increasing services in response to greater demand as travel restrictions ease, is likely to result in less competitive markets.

“This is why we have given this arrangement interim authorisation while we consider the substantive application.”

The routes in question include several currently not operated by either Virgin or Alliance, such as Brisbane to Weipa, Tamworth and Ayers Rock; Alice Springs to Darwin; Melbourne to Mildura, Canberra, Newcastle and Kununurra; and Sydney to Canberra, Tamworth and Port Macquarie.

Mr Ridgeway said any public detriment resulting from reduced competition between Alliance and Virgin was likely to be limited given the small number of scheduled regular passenger services operated by Alliance.

“We will consider this issue further in the course of our review of the substantive application,” Mr Ridgeway said.

“We consider that other airlines, including Qantas Airways and Qantas-owned Jetstar, are likely to compete strongly with Alliance Airlines and Virgin Australia on many of the routes covered by the agreement.”

The authorisation is a significant win for Virgin Australia which had committed to maintaining a regional network following the airline’s administration and sale to Bain Capital.

But fleet changes within the carrier meant Virgin was unlikely to be able to operate to a number of regional centres, due to demand and infrastructure.

Alliance Aviation, which recently started taking delivery of Embraer 190 jets to add to what had been an all-Fokker fleet, previously flew a number of routes for Virgin under a wet lease arrangement.

The Brisbane-based charter operator is also expected to resume Brisbane-Port Moresby flights for Virgin, and may add Brisbane-Honiara as well.