Virgin Australia eyes larger slice of Hong Kong market

Expanded partnership with Virgin Atlantic sought to compete with Qantas and Cathay Pacific

Virgin Australia and Virgin Atlantic have filed plans for a proposed partnership on services between Australia and the UK and Ireland, via Hong Kong and Los Angeles. The alliance has the scope to include new routes, frequencies and capacity upgauges.

The Proposed Cooperation aims to improve Virgin Australia’s passenger feed on flights to Hong Kong (which launched from Melbourne in July 2017 and Sydney in July 2018), and its loads between Australia and Los Angeles. It comes after Virgin Australia’s codeshare partner, Hong Kong Airlines, dropped its Australian operation in October 2018 due to poor performance, and abandoned its New Zealand services last month.

Virgin Australia and Virgin Atlantic are currently codeshare partners and offer reciprocal frequent flyer benefits. The new venture relates to inventory management, sales and marketing, scheduling, network and capacity decisions, pricing, product, operations and  procurement, in addition to an extension of their existing frequent flyer agreements.

Under the Heads of Agreement filled with the Australian Government last week, the Virgin branded airlines have sought approval for a long term cooperation agreement to better compete against the likes of Qantas and Cathay Pacific.

They told the Australian Competition and Consumer Commission (ACCC) that under the alliance they will create “more competitive connecting international services” with a “compelling Virgin-to-Virgin brand proposition”.

“The Applicants will better utilise each carrier’s home market strength, implement improved pricing and inventory management strategies and optimise their airport operations in Hong Kong and Los Angeles,” they said.

In their application, the airlines said the cooperation would assist Virgin Australia to “more sustainably operate its Australia-Hong Kong services in competition with Qantas and Cathay Pacific”.

They said those “dominant carriers” enjoy load factors on their flights to Hong Kong of over 80%, and share over 90% of the market, compared to Virgin Australia’s loads of “around 66%” and less than 10% of traffic.

Currently, Virgin Australia and Virgin Atlantic’s market share on the Australia to UK/Ireland route is less than a combined 3%. That’s compared to the powerhouse alliance of Qantas and Emirates which gobbles up 40% of the market under their long term alliance.

Among the benefits of the VA/VS partnership is competitive joint pricing, product enhancements, improved schedules and reduced connection times and increase in competition between Australia and the UK/Ireland.

Should the Proposed Cooperation be authorised, the carriers plan to enable codesharing between flights:

  • Virgin Atlantic plans to codeshare on flights operated between Australia and New Zealand by Virgin Australia;
  • Virgin Australia will codeshare on VS’s operated flights from London Heathrow to other cities in the UK and Ireland;
  • and in the future, Virgin Australia will codeshare on Virgin Atlantic flights from other connecting points in the US and UK/Ireland on itineraries that include a VA flight from Australia.

If approved, the carriers also said they may co-locate airport lounge and facilities at Los Angeles International Airport in the future.

Virgin Australia and Virgin Atlantic are seeking interim authorisation by 21 June to initiate the partnership ahead of a draft determination by the ACCC in September this year. A final decision is expected to be handed down in November.

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