Qantas FIFO growth dealt major blow

In a major blow to Qantas’s fly-in, fly-out growth strategy, the Australian Competition and Consumer Commission has rejected its planned takeover of Brisbane-based Alliance Aviation Services.

The ACCC said Qantas and Alliance were key suppliers of air transport services to mining and resource companies and, after a thorough investigation of the proposed acquisition, it concluded the transaction was likely to substantially lessen competition in markets for the supply of air transport services to resource industry customers in Western Australia and Queensland.

“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,” ACCC chair Gina Cass-Gottlieb said.

QantasLink, which has 33 aircraft dedicated to FIFO work, and Alliance, which has 70, dominate the market, with Virgin Australia Regional Airlines listing 23 aircraft.

However, both Qantas and Virgin also use 737-800s for FIFO charters.

The other player in the FIFO space is Cobham, which was purchased by REX last year and fields 15 aircraft.

Ms Cass-Gottlieb said Qantas and Alliance strongly competed with each other in markets where there are few effective alternatives.

"The proposed acquisition would combine two of the largest suppliers of charter services in WA and Queensland," she said.

“Flying workers in the resource industry to and from their worksites is an essential service for this important part of the Australian economy, so it is critical that competition in this market is protected."

The ACCC said it received considerable feedback that Alliance was strongly valued by customers as a particularly vigorous and effective competitor.

Business News understands there was considerable opposition to the takeover from resource companies based in WA.

Ms Cass-Gottlieb said combining such an important player with Australia’s largest airline, Qantas, would be likely to substantially lessen competition and was something the ACCC opposed.

“Qantas will face limited competition if allowed to acquire Alliance because most other airlines lack the right aircraft, fleet size, or capabilities needed to compete effectively,” she said.

“Airlines wanting to enter or expand at scale, face a combination of barriers, including incumbency advantages, the need to establish a reputation for providing a reliable service, access to and training of air crew and engineers, access to suitable aircraft and infrastructure, and the significant regulatory requirements to fly.”

Qantas responded through a statement on the ASX this morning, saying it would seek more information from the ACCC about the opposition.

“Qantas remains confident the acquisition would not substantially lessen competition in any market,” the ASX statement said.

“As well as reviewing the announcement released today, the airline has requested a meeting with the ACCC to understand its decision, which is at odds with the increasingly competitive nature of the segment and views expressed by a competitor that the acquisition would not lessen competition.

“Australia has one of the most competitive aviation industries in the world. That competitive dynamic is intensifying with new entrants and expansion of existing carriers and significant growth in the resources sector.

Qantas argues that in the time since it had reached an agreement to fully acquire Alliance in May 2022, competitor Rex had acquired charter operator National Jet Express from Cobham Aviation, a transaction that received ACCC clearance within 11 days, and Virgin Australia has been clear about its plans to expand its own resources flying.

It said that the proposed acquisition of Alliance would enable Qantas to service this important sector better, particularly through the efficiencies unlocked through a combined fleet of similar aircraft.

Qantas said that it first flagged its long-term interest in ultimately acquiring 100 per cent of Alliance when it bought just under 20 per cent of the charter operator in February 2019.

The ACCC investigated that minority holding for three years and made no findings that it lessened competition, according to the national airline.

Qantas is Alliance’s biggest customer, wet leasing 18 Embraer aircraft that are operated on the national carrier’s behalf on a number of regular largely regional passenger routes.