US rejects Virgin Blue, Delta alliance

[Slats7]

US rejects Virgin Blue, Delta alliance | The Australian

THE Obama administration rejected today plans by Virgin Blue and Delta Air Lines to co-ordinate operations between Australia and the US.

The US Transportation Department proposed to deny an application for antitrust immunity that would have allowed a Delta-Virgin Blue alliance to co-operate on pricing, revenue management and marketing on trans-Pacific routes.


The agency said the carriers hadn't demonstrated that the proposed alliance would produce sufficient public benefits, such as lower fares and increased capacity, to justify an exemption from US antitrust laws.






I was a bit surprised when I heard this as most reports I had read seemed to think the alliance would be allowed.

 

[BAM1748]

Oh well, Virgin will have to go back to plan A, go for it themselves or pull out and Delta, well, they are big enough to do it themselves.

 

[samh004]

That’s a bit of a blow! :-|

 

[straitman]

Surely, like everything else in the US system there will be a appeal.

 

[pauly7]

Ouchhhhhhhh!

They were relying on this to get into the black on the US routes right?

 

[notzac]

Wow. That's gotta suck ... wonder if there'll be an appeal?

 

[notzac]

From http://online.wsj.com/article/BT-CO-20100908-716782.html

MELBOURNE (Dow Jones)--Virgin Blue Holdings Ltd. (VBA.AU) said Thursday that it will work with the U.S. Department of Transportation over the coming two weeks to try and address the Obama administration's concerns over its planned tie up with Delta Air Lines Inc. (DAL) on flights between Australia and the U.S.

 

[anat0l]

Wow. That's gotta suck ... wonder if there'll be an appeal?

Without any good solid reason in the article why the proposal was rejected, it must come down to the nitty gritty or simply the phases of the moon. In any case, there has got to be an appeal unless someone really thought that the proposal was premature and/or a mistake.

 

[jakeseven7]

Wow. That's gotta suck ... wonder if there'll be an appeal?

I'm sure there will be! But there has been alot of commentary that the submission was ill-thought out and even amateurish with little attention paid to key questions and hurdles that need to be addressed (maintenance of competition etc).

This surprises me - maybe not from Virgin as they don't have much experience with this sort of thing, but from Delta - who should be old hands at this.

Speculation maybe Delta didn't want it quite as bad....... mmmm

 

[stuartfaz]

Virgin's DL and NZ alliance plans...well, stuffed.

In seemingly consecutive announcements over the last couple of days, DJ's attempts to bolster its trans-tasman and international position with tie-ups with NZ and DL have been well and truly stuffed.

From the SMH: Blow for Richard Branson: Virgin Blue plans in disarray | Air New Zealand

Virgin Blue’s bold new strategy aimed at overhauling its international network and capturing a bigger slice of the lucrative business travel market is in disarray after the competition regulator indicated it will block its planned alliance with Air New Zealand.

In the second setback for Virgin Blue in as many days, the Australian Competition and Consumer Commission said today that it plans to reject the alliance with Air New Zealand because it believed it would lessen competition and increase the likelihood of ‘‘coordinated conduct’’ on the trans-Tasman route.


Yesterday, US regulators indicated they would block Virgin Blue's planned joint venture with Delta Air Lines on the Australia-US route.

Whoops.

 

[concorde70]

It appears that Virgin Blue including V Australia is poorly managed. Their foray into international routes has been a badly coordinated disaster.
As I understand it they tried to take on Qantas on the USA route with out having sufficient capacity, then the market was flooded with capacity with other carriers operating the route just as the effects of the GFC struck.
VA tried to take on the Qantas/SAA monopoly on the South Africa route but chose the wrong aircraft and chose not to stop in Perth to pick up additional passengers.
They put B777 aircraft on the coughet route, again an unsuitable choice of equipment.
They announced that they would cease operation on the domestic NZ routes and tie up with Air New Zealand. The ACCC has now put paid to those plans.
They announced a tie up with Delta and the US Regulators have put paid to that idea.
They announced an extention to their South Africa and coughet routes but just 10 days
later announced that they were withdrawing from those routes altogether!

There has also been discussion over the fact that the VA B777's are almost worthless on the second hand market because of the selection of small cargo doors on these aircraft which restricts the type of cargo that they can carry.

These are all indicators of poor management planning and insight and an inability to understand and negotiate with regulators. If I were a shareholder I would seriously wonder just how incompetent the VBA managment are! I realise that there a new CEO but things do not appear to be any better than before.

The only glimmer of hope for VA is the Ethihad tie up but I do not really see how this is really going to help them and in any case this is also subject to regulatory approval and they have not had a run of good luck with that!

The real worry here is that these issues could lead to the demise of VA and Qantas would have a near monopoly on international airfares once again and there is little prospect of another Australian interational airline forming in future.

 

[samh004]

The real worry here is that these issues could lead to the demise of VA and Qantas would have a near monopoly on international airfares once again and there is little prospect of another Australian interational airline forming in future.

The airline made a profit with it’s domestic operations this past year, they’re not just going to fall over. They’re making money! Regardless of the share price.

 

[pauly7]

The real worry here is that these issues could lead to the demise of VA and Qantas would have a near monopoly on international airfares once again and there is little prospect of another Australian interational airline forming in future.

Qantas monopoly on International routes?! Are you serious?

Qantas have far bigger problems than V Australia to contend with... cough Singapore (backed by a cash rich government), cough Emirates (with tax subsidies, cheap fuel and staff).

 

[kamchatsky]

I actually hoped that they will get the green light on these alliance proposals with Delta and AirNZ. This is serious blow to them. Without them the trans-Pacific ticket prices would never be this low at the first place. The authorities should see this at the first place before making their decisions.

 

[PineappleSkip]

Qantas would have a near monopoly on international airfares

I remember how much more flights to the US cost just a couple years ago.

In any case the DOT ruling was just a draft one

cheers skip

 

[odysseus]

I actually hoped that they will get the green light on these alliance proposals with Delta and AirNZ. This is serious blow to them. Without them the trans-Pacific ticket prices would never be this low at the first place. The authorities should see this at the first place before making their decisions.

The issue is not preventing them from operating that route, but reducing competition by tying up arrangements with a competitor.

 

[concorde70]

The airline made a profit with it’s domestic operations this past year, they’re not just going to fall over. They’re making money! Regardless of the share price.

Yes, a profit on domestic routes but they are losing money on international routes (VA) and if they do not start making a profit on these routes VBA will have to shut VA down.

The share price is a pretty good indicator of the financial condition and future propects of any company. I am sure VBA will be around for a while but their shareholders demand a return, if VBA cannot deliver it through international routes then they will cease these operations and focus on domestic operations. I certainly hope that they suceed, I like having more choice.

 

[samh004]

The share price is a pretty good indicator of the financial condition and future propects of any company. I am sure VBA will be around for a while but their shareholders demand a return, if VBA cannot deliver it through international routes then they will cease these operations and focus on domestic operations. I certainly hope that they suceed, I like having more choice.

Does VBA offer a dividend, or are they pumping the money back into the company?

 

[odysseus]

Does VBA offer a dividend, or are they pumping the money back into the company?

No, they're currenntly in the 'growth' stock category, i.e. the only return you'll get is from capital growth.

Their earnings for the past year were only 1c/share (2.5%) so there's not a lot of scope for dividends as it is.

To be fair, Qantas also suspended their dividend this year.

 

[markis10]

It appears that Virgin Blue including V Australia is poorly managed. Their foray into international routes has been a badly coordinated disaster.
As I understand it they tried to take on Qantas on the USA route with out having sufficient capacity, then the market was flooded with capacity with other carriers operating the route just as the effects of the GFC struck.
VA tried to take on the Qantas/SAA monopoly on the South Africa route but chose the wrong aircraft and chose not to stop in Perth to pick up additional passengers.
They put B777 aircraft on the coughet route, again an unsuitable choice of equipment.
They announced that they would cease operation on the domestic NZ routes and tie up with Air New Zealand. The ACCC has now put paid to those plans.
They announced a tie up with Delta and the US Regulators have put paid to that idea.
They announced an extention to their South Africa and coughet routes but just 10 days
later announced that they were withdrawing from those routes altogether!

There has also been discussion over the fact that the VA B777's are almost worthless on the second hand market because of the selection of small cargo doors on these aircraft which restricts the type of cargo that they can carry.

These are all indicators of poor management planning and insight and an inability to understand and negotiate with regulators. If I were a shareholder I would seriously wonder just how incompetent the VBA managment are! I realise that there a new CEO but things do not appear to be any better than before.

The only glimmer of hope for VA is the Ethihad tie up but I do not really see how this is really going to help them and in any case this is also subject to regulatory approval and they have not had a run of good luck with that!

The real worry here is that these issues could lead to the demise of VA and Qantas would have a near monopoly on international airfares once again and there is little prospect of another Australian interational airline forming in future.

I find it interesting that your examples of how Virgin Blue are poorly managed are totally focused on VA or their international operations with PB! You also show a glaring lack of knowledge about the operations and the effect of VA on the bottom line to DJs domestic ops which are doing quite well, for instance:

VBAs international yield for July was 86%, higher than the domestic yield.
Long Haul operations lost only $43M for the year, thats not bad for what is a start up operation in a difficult market, down from twice that the year before.

While I have been critical at DJ and their very amateurish attempts at providing basic customer information online, their financial results are good and I see it as a good sign that they are responding to the market by changing routes etc and removing aircraft that dont make sense, its to be expected to be frank given the staff changes that have occurred. While the rejection of the alliances is not great, it could be a case of one door closing, a better one opening.