The Australian Competition and Consumer Commission (ACCC) has scored a significant victory over Qantas (ASX:QAN) as the airline called off its $611 million takeover of the smaller rival fly-in, fly-out operator, Alliance Aviation Services.
Qantas and Alliance had initially announced the deal in May 2022, following Qantas’s acquisition of a nearly 20% stake in Alliance the previous month. However, after a lengthy investigation, the ACCC denied authorisation for the acquisition in April of the current year, stating that the deal was likely to raise prices and reduce service quality.
Both companies argued that the buyout would have improved customer value without harming competition in the resources sector, as expressed in a joint statement. Nevertheless, they conceded that there is currently no viable path forward for the deal.
Qantas will continue serving the fly-in, fly-out resources sector through its existing charter operations, where it currently holds approximately 27% of the total charter market. The airline will maintain its near 20% stake in Alliance and uphold their long-term agreement, under which Alliance operates up to 30 E190s for the Qantas Group.
As part of the agreement, Qantas has committed to exercising options for four additional aircraft, bringing the total number of E190s operated by Alliance for the Qantas Group to 26, with four options remaining. These additional planes are expected to join the Qantas fleet starting in April.
In its April 2023 decision, the ACCC highlighted Qantas and Alliance’s critical roles as suppliers of air transport services to mining and resource companies in Western Australia and Queensland, particularly for “fly-in, fly-out” workers.
After a thorough investigation, the ACCC concluded that the transaction would significantly reduce competition in the markets for the supply of air transport services to resource industry customers in Western Australia and Queensland.
ACCC Chair Gina Cass-Gottlieb expressed concerns, stating, “We consider Alliance to be an important competitor to Qantas, and the removal of Alliance is likely to substantially lessen competition, threatening increased prices and reduced service quality for customers.”
She emphasised the importance of maintaining competition in this essential market for the Australian economy. The ACCC found that other airlines, including Virgin Australia and National Jet Express (recently acquired by Rex), and smaller market participants, would be unlikely to swiftly expand to address the loss of competition resulting from the proposed acquisition.