Delta, Virgin Blue Seek Antitrust Immunity For U.S.-Australian JV

Newcomers to U.S.-Australia routes Delta Air Lines and Virgin Blue Airlines Group in July announced plans to form a joint venture as a competitive alternative to Qantas Airlines and United Airlines, the carriers with the highest marketshare between the two countries.

In an application filed with the U.S. Department of Transportation, Delta and Virgin Blue proposed to be immune from antitrust laws so they can jointly cooperate "in the areas of planning, revenue and pricing, yield management, marketing and operations."

"This agreement is a significant milestone in the expansion of our global network in the Australia and South Pacific region," said Delta executive vice president for network and revenue management Glen Hauenstein of the carrier's plans with Virgin Blue Airlines Group, which includes the second-largest domestic Australian carrier Virgin Blue and international airline V Australia.

Before a March 2008 Open Skies agreement, air service between the United States and Australia "was provided only by Qantas and United, and new entrants were entitled only to four weekly frequencies when they entered the market," Delta and Virgin noted in their joint application.

Delta this year launched its first flight between the two countries, while V Australia launched initial service to the United States in February, and now operates a daily nonstop between Los Angeles and Sydney and serves Los Angeles from Brisbane three times a week. The carrier expects to launch Los Angeles-Melbourne flights three days a week in September.

"Not only will we offer travelers many new benefits and possibilities, but also the alliance of two new entrant operators will ensure that vital competition is sustained on the transpacific route," said Virgin Blue Airlines Group CEO Brett Godfrey.

The proposed joint venture is structurally similar to other airline joint ventures—including Delta's own with Air France-KLM and the recently approved Continental, United, Lufthansa and Air Canada deal (see story, page 1)—but Michael Boyd, president of aviation consultancy Boyd Group International, said "it's a minor thing" compared to those far more expansive ventures, which involve more airlines across more heavily trafficked transatlantic routes.

Though the carriers in the joint application conceded that each offers "limited service" between the United States and Australia, both have vast "multi-hub domestic networks" that, when combined, comprise "more than 6,500 U.S.-Australia airport-pairs," the carriers noted in the application filed with DOT on July 9.

"On both ends, it can give each carrier some feed from the other," Boyd said, "but Delta is not so strong in L.A. for feed."

Qantas commercial group executive Rob Gurney said despite the new entrants, Qantas would offer "the best frequency, market coverage and onward connections" and "regardless of what competitor airlines do, we will maintain our very competitive fare offerings on transpacific services."

Delta and Virgin noted in the filing that Qantas is increasing Airbus A380 flights between Los Angeles and Sydney and Melbourne "in anticipation of new entry," which the carriers argued "underscores the need for Delta and the Virgin Blue carriers—much smaller competitors—to join forces and maximize their potential competitive efficiencies."

"Qantas is a founding member of Oneworld, and, as noted, its long-standing partnership with American places it as the undisputed leader in the U.S.-Australia market," the carriers' application said. "United, the U.S. anchor partner for Star, also has a strong position in Australia and further maintains an antitrust-immunized alliance with Air New Zealand for service to that important neighboring destination."

In the application, Delta and the Virgin carriers singled out cooperation on "primarily transpacific service to and from the South Pacific region," which would focus initially on Australia but could evolve to include New Zealand, where Pacific Blue, another subsidiary of the Virgin group, operates.

The two carriers stressed the joint venture does not indicate a plan for Virgin Blue to join Delta's global SkyTeam alliance, nor does "Delta have any plans to cooperate with any other Virgin-branded entity."

Since it could be months before approvals enable the carriers to cooperate as an antitrust-immune entity, they first expect to work together through codesharing, frequent flyer programs and airport lounge offerings "in advance of their joint venture," the airlines said.

However, the carriers said they "will not proceed with the joint activities contemplated by the alliance agreements without a grant of immunity." Without the joint venture, the carriers note that neither could "offer a comprehensive network, or depth of schedule options, to compete on par with the established incumbents."