Nearly two years after they first applied for antitrust approval for a transpacific joint venture, US regulators have proposed to approve the tie-up between Delta Air Lines and the Virgin Australia.
The Virgin Blue group recently rebranded itself as Virgin Australia, and its long-haul carrier V Australia offers flights in the US-Australia market.
The US Department of Transportation on 10 May proposed approving the joint venture and associated antitrust immunity citing "substantial changes from the previous application", including an expansion by Virgin Australia of the scope of the alliance to include more customers and an upgrade by the Australian airline group of its Navitaire New Skies reservations system to ensure compatibility with Delta's system.
In essence DOT stated three major concerns it had over the proposed tie-up that prevented prior approval have been quelled- conditions in the US-Australia market were "not ripe" for a grant of antitrust immunity, that Delta and Virgin Australia did not sufficiently lay-out plans to create a robust codesharing network and barriers to integration among the Virgin Australia carriers would hinder the delivery of public benefits of the joint venture.
To satisfy concerns about flux in the US-Australia market, Delta and Virgin Blue have agreed to hold their transpacific capacity at currently levels for two years. Delta offered to maintain seven weekly peak season and six weekly off-peak departures between the US and Australia while V Australia agreed to 15 weekly peak and 11 weekly off-peak 777 departures between the two countries.
DOT stated the peak and off-peak schedules will each be run for six months of the year, and Delta is allowed 10 ad hoc cancellations while V Australia is allotted 20.
The agency explains while the global recession was unfolding in 2008, Delta and V Australia introduced service in the long-haul US-Australia market that increased capacity by about 20%. At the same time fares in the market plummeted by 50% from mid 2008 to mid 2009. "Therefore, a grant of antitrust immunity could have provided the applicants with extra incentive and ability to reduce capacity in the market to put upward pressure on fares," explained DOT.
Delta and Virgin Blue have allayed DOT's concerns over a strong connecting network by agreeing to include revenue from third points in Canada, Mexico and New Zealand in their revenue sharing agreement.
Finally, the reservations system upgrade at Virgin Australia has satisfied DOT's concerns over systems to support automated codesharing with Delta.
If the carriers secure final approval for the joint venture, it must be launched within 18 months of DOT issuing a final order. Objections to the tentative approval must be filed within 14 days.
Delta and Virgin Australia jointly welcomed DOT's endorsement, and stated an econometric study by Compass Lexecon estimated annual consumer benefits of $54 million produced by the joint venture.
Source: Air Transport Intelligence news
