March 19, 1995

Article at Sunday Age

BUSINESS | Virgin threat to Qantas-BA kangaroo deal

By Wilson da Silva 

QANTAS and British Airways, expecting their price-sharing agreement to be approved by Australia’s Trade Practices Commission, may have one more hurdle to jump: Richard Branson’s Virgin Airlines, which is threatening to challenge the deal.

The high-profile British entrepreneur, who has long sought to get permanent slots for Virgin on the London-Sydney “kangaroo route”, has dubbed the proposed deal “a duo-monopoly”, and promised to challenge it. 

Virgin has already brought a billion-dollar anti-trust suit against British Airways in the United States, alleging BA monopolises Heathrow airport (where it has two-thirds of the flight slots), and uses its position to gain unfair advantage on trans-Atlantic routes. A US court ruled in January that three of the counts should be tried. BA is appealing.

“Our argument has always been that this agreement is not anti- competitive,” said Mr Andrew Charlton, the manager of group legal affairs for Qantas. He said Qantas and BA were fairly confident the TPC would rule in their favor in the next few weeks: “We wouldn’t be in conversation with the commission if we thought we weren’t going to get an outcome that was suitable.”

Mr Charlton dismissed a threat from Virgin, saying it had failed to lodge a complaint with the TPC, and had not applied to the European Commission with a complaint. While he did not dismiss the possibility of Virgin lodging anti-trust action in the US, he said it was unlikely to win a case.

“I’m laboring to see how Virgin will bring this matter in front of the courts in the United States. Now Virgin’s got very good lawyers, they may come up with a creative line that I haven’t thought of yet,” he said.

Virgin currently operates a marketing deal with Ansett which allows Virgin passengers flying London to Hong Kong to connect with an Ansett flight to Sydney. In April, a new deal with Malaysian Airlines comes into effect, giving Virgin passengers daily connecting flights to Sydney via Kuala Lumpur.

The deals are seen as a bid to challenge the dominance of BA and Qantas on the “kangaroo route”, where the airlines between them control more than half the market. This is the reason why the TPC in its draft determination in November disallowed the agreement, objecting to planned price-fixing arrangements which it regarded as “seriously anti-competitive”.

The TPC is due to hand down its final decision in the next week or so on whether to approve Qantas/BA deal. British Airways owns 25 per cent of Qantas, and the remainder of the stock is to be publicly floated later this year.

The Finance Minister, Mr Kim Beazley, said last week that a July- August timetable for the Qantas float was still on.

“We have to watch the sharemarket, but we are not completely dominated by any particular development in the sharemarket in deciding to proceed with the float,” he said.

The Government hopes to inject the proceeds from the float into the 1995-96 budget, rather than the original plan of hoping to pump it into this year’s budget which already is subject to severe spending cuts.

Sources say the Federal Government is keen for the kangaroo deal to be approved as this would help lift the sale price of Qantas closer to the $2.5 billion the Government is seeking.

The chairman of Qantas, Mr Garry Pemberton, announced on Wednesday a $128.5 million profit for the December half.

The result represented a 79.5 per cent jump in earnings from the previous December half.