The Australian Competition and Consumer Commission (ACCC) has provided an update on its investigation into Qantas’ acquisition of a 19.9% stake in Alliance Aviation, the parent company of Alliance Airlines, on 1 February 2019.

“The Australian aviation industry is in a state of major upheaval and now, more than ever, we are concerned that competition by smaller airlines is not hindered,” the commission says.

“We will continue to seek information from market participants to gauge any impacts on competition arising from Qantas’ stake in Alliance.”

The ACCC says its investigation is focused on the competitive dynamics between both companies. This concerns whether Qantas’ stake affects Alliance’s ability to raise funds, consider takeovers or participate in commercial ventures, and if Qantas is attempting to exert influence on Alliance’s decision-making or operations.

The commission notes that Qantas has stated publicly that it intends to seek regulatory approval to build on its current shareholding, with a longer-term view of taking a majority position in Alliance.

“Our current view is that any further increase in Qantas’ stake in Alliance is very likely to raise significant competition concerns under the Competition and Consumer Act,” says ACCC chair Rod Sims.

The commission reiterates that Alliance is an important and close competitor to Qantas, particularly in regional markets for fly-in fly-out services for the mining and resources sector. Alliance, through a codeshare arrangement with Virgin Australia, is also Qantas’ only competitor on regular passenger transport routes between Brisbane and key regional centres of Bundaberg and Gladstone.

Sims says: “The Australian aviation industry remains highly concentrated and it is crucial that competition provided by smaller airlines is maintained long term.”

He adds: “Acquiring a strategic stake in a close competitor in such a concentrated market raises clear competition concerns.”

On 1 August 2019, the ACCC released a “Statement of Issues” on the matter and was accepting submissions from interested parties up to 21 August 2019.

It said then: “As the acquisition has been completed, the ACCC has not set a timeline for its investigation of this matter.”

The same document states that if a court determines that the transaction has contravened the Competition and Consumer Act, it could make divestiture orders or declare the transaction void.

The court may also impose a monetary fine, up to the greater of A$10 million ($6.7 million) and up to three times the benefit obtained from the transaction, or 10% of the corporation’s Australia revenue for the preceding 12 months.

Alliance’s annual report for the financial year ended 30 June 2019 shows that it has eight substantial shareholders with a collective 75.6% stake. After Qantas comes HSBC, holding 18.8% shares as a custodian bank. Other shareholders on the list each hold 4-8%.