Judging by the response from competition regulator, the ACCC, Qantas can save itself $614 million and earn a few brownie points by not proceeding with the proposed acquisition of Fly-In Fly-Out (FIFO) operator Alliance Aviation Services Ltd.
In a statement published on Thursday the Commission expressed a number of concerns about the anti-competitive nature of the Qantas’ proposed purchase.
The Commission made it clear it believes the takeover is likely to substantially lessen competition for air transport services in remote and regional areas.
Qantas bought a 19.9% stake in Alliance Aviation Services in 2019 and then in May of this year Qantas announced it had struck an agreement with Alliance to buy the remaining 80% and made a submission to the ACCC for clearance.
Under the proposal, Alliance shareholders would receive Qantas shares worth $4.75 (Qantas shares ended at $4.77 yesterday, down 1%) for each Alliance share, currently worth $3.44 at yesterday’s close, down 3%.
Alliance Aviation Services represents about 2% of the total national aviation industry but its real strength is primarily being used by resource companies needing to transport workers in Queensland and Western Australia.
In that mode it supplies 30% of charter services, with the remainder split between Qantas (with around 23%), Virgin (on 22%) and a number of smaller operators.
If successful, the merger will combine two of the top three operators of air transport services in Queensland and Western Australia. It would also remove Alliance as the only competitor to Qantas on the Brisbane-Moranbah regional passenger transport route. That is perhaps the prime route for the central Queensland coal fields in the Bowen basin.
“We are concerned that this proposed acquisition is likely to substantially lessen competition for air transport services to and from regional and remote areas in Queensland and Western Australia for corporate customers,” ACCC chair Gina Cass-Gottlieb said in Thursday ’s statement.
Qantas is not the only airline angling to expand their charter service operations. In July, Rex acquired charter operator National Jet Express from Cobham Aviation, receiving ACCC clearance later that month. Virgin Australia has also expressed a desire to acquire new aircraft to expand its own FIFO business.
The ACCC said they were considering the level of competition provided by Virgin as well as Rex’s recent acquisition from Cobham as well as how the removal of Alliance’s aircraft leasing services would affect the ability of current and new airlines to compete against Qantas on regional routes.
Qantas Group Executive of Associated Airlines and Services John Gissing said in a statement the airline would continue to work with the ACCC to ensure any competition concerns were addressed.
“There are a significant number of charter operators of different sizes and that makes it an extremely competitive segment. We’re confident our acquisition of Alliance does not substantially lessen that competition, and we’ll work through the ACCC’s process to support that position and address their initial concerns.
“As the ACCC has previously acknowledged, customers in the resources flying segment are sophisticated and well-resourced companies with procurement expertise who have strong bargaining power in their negotiations with airlines and other operators.
“The resources sector continues to grow and any new tender for airline services will be very competitive. It makes a lot of sense for us to combine with Alliance to improve the services we can offer, which is a positive for both airlines as well as the travelling public.”
But according to the ACCC chair “Our preliminary view is that there are already significant barriers for airlines who want to enter or expand their operations in regional and remote areas, including access to pilots, airport facilities and infrastructure, and associated regulatory approvals.
The removal of Alliance as a supplier of wet-leases or the increase in price of wet-leases for Qantas’ competitors is likely to significantly increase these barriers,” Ms Cass-Gottlieb said.
“A competitive and well-functioning aviation sector is fundamental to the Australian economy. We will closely scrutinise all mergers that may reduce competition in this sector.”
The ACCC invited submissions from interested parties in response to the statement of issues by September 1,2022. The ACCC’s final decision is scheduled for November 17, 2022.
There would be a lot of Qantas passengers who have travelled in recent months and who would like the airline to invest $614 million on more ground staff and other facilities at major airports to ease the continuing congestion.
