Tale of Woos from Virgin Blue

Virgin Blue is in for some trying times. The airline’s cooperation strategy with Delta and Air New Zealand received a negative response from the Australian Competition and Consumer Commission (ACCC). This comes as a dampener to Virgin Blue’s plans of putting up a stiff competition against the rival airline Qantas. As per the ACCC, Virgin Blue’s alliance can stifle competition in the market of trans-Tasman air passenger service. As per the ACC, the alliance may well bring competition issues on numerous trans-Tasman routes as Virgin Blue is a major competitive force against Air New Zealand. ACCC also stated that if competition between Virgin Blue and Air New Zealand comes to an end, then more than a million passengers would be adversely affected every year.

These observations definitely seem to hint towards the availability or rather unavailability of cheap flights. However, these findings have not gone down well with industry experts. They have made certain observations, which are mentioned in the following account.

Currently Unsustainable Tasman Competition

It is being pointed out that the entire aviation industry is not sustainable but this actually holds positive ramifications for the customer. Market exit becomes easier with the growing influence of liberalisation. This has the effect of improving industrial feasibility as entering the market becomes simpler. However, real economic efficiency remains unattainable unless governments stop propping up big outdated airlines.

However, here the scenario is rather different. About 90% of corporate business and around 65% of Australia’s market share is with Qantas and its subsidiary, Jetstar. Virgin Blue is attempting to find an enduring position in Australia as a significant full service rival. Virgin is listed and does not has particular claims upon perpetuity. Such issues are not under the domain of ACCC. The commission needs to work under the ambit of competition laws, which normally restrict capacity and give results that are not in tandem with market logic. There needs to be reasonable prospects for the present draft determination to be sent for appeal to the Competition Tribunal, if it is confirmed in the first place. Going by the earlier decision on Qantas Air New Zealand, in such an eventuality, better results can be expected

Concerns over terming Virgin Blue as Maverick

Pacific Blue was already voicing the decision to exit the domestic market of New Zealand. The company had lost about AUD$20 million within a two year span. Naturally, the airline was very cautious about foraying into the Tasman sector. Despite these state of affairs, the ACCC gave a lot of significance to the maverick role of Virgin Blue/Pacific Blue in fixing Tasman pricing. This strategy is similar to ACCC’s approach towards the application on Delta cooperation.

In the current circumstances, maverick behaviour would mean sabotaging coordination by initiating price wars and discounting aggressively or not following competitors’ example, while hiking market price.

In addition, there are some startling findings resulting from a short examination on pricing behaviour. This examination was made by the centre somewhere about the time when the application was made. Virgin Blue’s costlier product was being priced in the dangerous zone halfway between Jetstar’s and Air New Zealand and Qantas charges. This does not present the airline in a maverick’s role and even shows its struggling position in the Tasman.