US regulators see no competitive red flags in Delta-Virgin Australia pact

Washington DC
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United, Air New Zealand and Qantas will still retain a significant passenger share in the US-Australia/New Zealand nonstop market if Delta and Virgin Australia receive final approval for anti-trust immunity.

That was the conclusion offered by the US Department of Transportation (DOT) in its proposed approval of the tie-up, nearly two years after Delta and Virgin Australia first sought to develop their transpacific joint venture.

Once anti-trust is obtained, the airlines can create a joint venture to coordinate route, schedule and product planning. Delta and Virgin Australia began codesharing on certain routes in January of 2010.

Through its competitive analysis the DOT estimated a combined Delta and Virgin Australia would have 20.8% passenger share in the US-Australia/New Zealand nonstop market. United and Air New Zealand, which currently have anti-trust immunity, would hold a 39% share. Australian flag carrier Qantas would retain a dominant share of 40.2%.

"The combination of Delta and V Australia [Virgin Australia's long-haul carrier] would create a new competitive entity carrying about one-fifth of the total passengers," concluded DOT in its tentative approval of the tie-up.

Specifically in the US-Australia market, DOT found that there "is little, if any, reason for competitive concern". The combination of Delta and V Australia would have a 28.3% passenger share, while United would hold 24.6%. Qantas' share would be 47.2%.

"We tentatively find that the three competitive entities will have sufficient size and scope to ensure robust competition in the market," the agency explained.

The analysis conducted in the largest market affected by the proposed joint venture - Los Angeles-Sydney-shows the market would fall from four to three carriers. However, DOT believes the shift would not substantially reduce competition.

The combined Delta and V Australia would have a 36.9% passenger share while United would capture 23.3% of the passengers. DOT's estimated share for Qantas is 39.9%.

"Even though Delta-V Australia combined would have just over one-third of the market and surpass United's share, Qantas would still have the largest presence in the market," said DOT. "An immunised Delta-V Australia would therefore face significant competition from the Star and Oneworld incumbents, and would likewise impart increased competitive discipline on its rivals."