Qantas' stake in Alliance hits turbulence

Written on the 1 August 2019 by David Simmons

Qantas' stake in Alliance hits turbulence

Qantas' (ASX: QAN) acquisition of a 20 per cent interest in Alliance Airlines (ASX: AQZ) has triggered alarm bells for the competition watchdog.

In a statement released this morning, the Australian Competition and Consumer Commission (ACCC) noted some red flags relating to certain transport routes only travelled by Qantas and Alliance.

Brisbane-based Alliance supplies charter air services to corporate customers in Queensland, the Northern Territory and Western Australia; mainly mining and resources companies requiring services for their fly-in-fly-out workforces.

The ACCC says that Alliance is Qantas' only competitor on regular passenger transport routes between Brisbane and the regional centres of Bundaberg and Gladstone, sparking the commission's concerns.

The watchdog is now accepting comments from customers and competitors about the effects of Qantas' $60 million acquisition of 19.9 per cent of Alliance.

"Alliance Airlines is a close, important and growing competitor to Qantas, including through its partnership with Virgin. It provides consumers and companies with a crucial alternative to Qantas in markets that are already highly concentrated," says ACCC chair Rod Sims.

"We consider this shareholding has the potential to impact Alliance's future growth and its ability to be a strong competitor. It may impact Alliance's ability to grow through raising funds from investors, or to consider rival takeover approaches. It may also impact whether Alliance's customers perceive it to be an independent rival to Qantas."

"In our view, any move by one company to acquire and build on a significant stake in a close competitor is likely to raise competition issues, due to the potential for the two businesses to compete less vigorously, or to influence each others' strategies or outcomes."

In response to the ACCC Qantas has doubled down on its position, repeating that it does not intend to exert control over Alliance.

"As we made clear when announcing our stake, we have not sought any management control or a board seat and remain a passive investor in Alliance," says Qantas.

"We do not believe there is any evidence of a lessening of competition as a result of our minority stake, nor any reasonable prospect that there will be. To the contrary, Alliance Aviation has extended the services it offers to the market in recent months."

In 2016, Virgin attempted to strike up a partnership with Alliance which was criticised by the consumer watchdog.

At the time, commissioner Sarah Court said that if Virgin and Alliance were given the go ahead to pursue the partnership it would curtail competition in Western Australia without providing justified benefits.

Virgin Australia at the time operated its own regional charter flights from Perth airport.

Shares in Qantas are up 0.26 per cent to $5.72 per share at 11.37am AEST.

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Author: David Simmons

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