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US regulators rethink on Delta/Virgin Australia

US regulator's reversal clears the path for Delta/Virgin Australia pact, with Qantas and American looking to follow suit

Anti-trust immunity issues are spreading to the South Pacific, where several airlines that operate between the USA and Australia are seeking approval for rival joint ventures.

The US Department of Transportation has approved the first of these, between SkyTeam's Delta Airlines and Virgin Australia, after an unprecedented reversal of its earlier denial. The closest the US DoT came to changing its mind on anti-trust immunity before was in the successive British Airways-American Airlines applications in the North Atlantic. After several years, they were finally approved with changed conditions.

With Delta-Virgin Australia, the US DoT reversed itself after only eight months. Its turn-around was an interim decision, but the lack of significant opposition prompted the US regulator to set a minimal comment period of only 14 days before a final ruling.

After the US DoT's initial denial last September, Delta and Virgin Australia supplied it with a mountain of new evidence, and chief executives from both carriers met personally with agency officials. Wisely, they did not challenge the agency's earlier reasoning, but offered facts to support a different conclusion. Susan Kurland, US DoT's assistant secretary for aviation and international affairs, noted in her recent decision that the two airlines had made "substantial changes" in their plans.

These included a broadened revenue-sharing network, better computer systems compatibility and removing barriers to integration with the various carriers in the Virgin Australia group. This last point was eased by a deal with Singapore Airlines allowing use of the Virgin name on overseas routes. This clears the way for Virgin Blue, Pacific Blue and V Australia to rebrand as Virgin Australia.

The key change was probably the commitment by the carrier to maintain transpacific capacity at current levels for two years. This allayed US DoT concerns that they would use anti-trust immunity mainly to cut capacity and improve their market share.

External factors may also have influenced the US DoT to reverse its earlier denial. The Australian government intervened forcibly on behalf of Virgin, arguing that the recently-inked USA-Australia open skies bilateral deserved more weight in the decision.

Finally, Qantas announced in January that it would seek anti-trust immunity for a joint venture with Oneworld partner American Airlines. This put the US DoT in a position where it would need a strong justification if it treated Australia's two overseas carriers differently.

For more on other joint venture moves around the globe see our earlier report at:

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