re: Ann: Response to Preliminary Decision by ... Virgin Blue's...

re: Ann: Response to Preliminary Decision by ... Virgin Blue's expansion plans hit turbulence
Matt O'Sullivan
September 9, 2010 - 10:36AM
Virgin Blue's overhaul of its international network has received a big setback after US regulators indicated they will block its planned joint venture with Delta Air Lines on the Australia-US route.
The US Transportation Department today issued a preliminary decision to turn down Virgin Blue and the US airlines application for anti-trust immunity in relation to their planned revenue-sharing agreement.
The preliminary decision is a big blow to Virgin Blues hopes of stemming losses incurred by its long-haul offshoot, V Australia, on flights between Australia and Los Angeles.
It is also a setback to the wider plans of Virgin Blues new chief executive, John Borghetti, to forge joint ventures with international airlines.
VBA Shares fell 3 cents, or 6.7 per cent, to 41 cents this morning.
The US department said in a statement today that the two airlines had not demonstrated that the alliance would produce sufficient public benefits such as lower fares or increased capacity.
It also said the airlines had only recently entered the trans-Pacific market, had not shown developed plans to operate as commercial partners, and have limited their cooperation to a handful of routes, thereby limiting the public benefits their alliance might produce.
Virgin Blue and Delta said in a statement to the ASX this morning that they would be working with the department over the next two weeks to address its concerns.
Virgin Blue said it strong believes that the proposed alliance .. will be good for customers.
Analysts had expected the Virgin-Delta alliance to easily gain approval from the department but insiders have long believed that US authorities will take a tougher stance on airline alliances.
US observers have said that the application from the two airlines lacked evidence to support the airliness claims that the deal would result in consumer benefits.
V Australia began flying between Australia and Los Angeles in February last year, taking on the incumbents Qantas and United Airlines. It was followed four months later by Delta, the worlds largest airline.
Last December the Australian Competition and Consumer Commission approved the revenue-sharing agreement between Virgin Blue and Delta for five-and-a-half years.
Qantas and United Airlines did not oppose the deal but it did meet staunch resistance from Air New Zealand, which has described it as collusion on fares and capacity.
The Singapore Airlines-backed Tiger Airways had also objected.
Under the deal the airlines planned to co-ordinate on a number of fronts including pricing and revenue management, and sales and marketing.
In earlier filings to regulators in Australia and the US, Virgin Blue and Delta had argued that without the planned joint venture their ability to compete against Qantas and United across the Pacific would be considerably weakened.
Virgin Blue is also awaiting approval from Australian and New Zealand regulators for a planned joint venture with Air New Zealand on the trans-Tasman route.