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  • What went wrong for Virgin Blue-Delta?
    Posted by Adrian Schofield 12:32 PM on Sep 10, 2010

    This week has certainly not been a good one for Virgin Blue on the regulatory front. On Sept. 9 the U.S. DOT issued a preliminary ruling rejecting a joint venture with Delta Air Lines. Then a day later, Australia’s competition watchdog said it intends to deny Virgin Blue’s proposed linkup with Air New Zealand.

     

    The Air New Zealand joint venture was always going to be an uphill battle for Virgin Blue, as evidenced by the vehement opposition from New Zealand airports. Regulators on both sides of the Tasman have previously shown little appetite for an alliance in the New Zealand-Australia market.

     

    However, industry observers were more surprised at the U.S. DOT’s rejection of the Virgin Blue-Delta joint venture for routes between the U.S. and Australia. Neither airline is a big player in this market, and the Australian Competition and Consumer Commission (ACCC) had already given its approval.

     

    Outright rejection of antitrust immunity for an international alliance has been a rarity in the U.S. Sometimes stringent preconditions are set, and the applicants are not prepared to meet them. But it is unusual for DOT to just say no.

     

    Part of the problem could have been the lack of political motivation. Every antitrust application has varying degrees of competition concerns counting against it. Offsetting these are the public benefits presented by the airlines. In many cases the factors that swing the balance can be described as “intangibles” – the external considerations that have little to do with the merits of the application itself.

     

    This is where political forces enter the picture. Often the granting of antitrust immunity by the DOT will help achieve a particular foreign policy goal, such as encouraging a particular country to sign an Open Skies deal.

     

    In the case of Delta and Virgin Blue, however, there was no such political pressure. The deal had no implications for Open Skies, or any other international agreement. It also had little effect on alliance dynamics. An industry observer notes that if DOT staff raised any competition concerns, nobody on the political side would have had a reason to override them.

     

    The industry source says Virgin Blue might also have been overconfident based on the Australian approval, and many have neglected to enlist the support of the Australian government.

     

    The DOT has two more antitrust applications on its books, and in these cases there is a clear-cut political motivation supporting their approval. These are the transpacific joint venture proposals by the Oneworld and Star Alliances, each involving U.S. and Japanese airlines. The Japanese government has made it clear that it wants one or both of these joint ventures approved before it officially signs an Open Skies deal that it negotiated with the U.S.

    While the DOT has stated that the antitrust immunity decision will be considered independently, there is clearly political pressure. So most industry observers do not expect these applications to share the fate of the Virgin Blue-Delta proposal.

    Tags: tw99, Virgin Blue, Delta, DOT

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