ACCC Intervenes in Qantas’ Acquisition
Qantas (ASX:QAN) has recently attracted scrutiny from the Australian Competition and Consumer Commission (ACCC). On February 1st 2019, Qantas announced that it had acquired 19.9 per cent shareholdings in Alliance (ASX:AQZ). Contextually, Qantas's actions in May, are evident of the forward thinking prevalent in the company. The company received AUD550 million in debt funding as well as currently having strong cash balances and a low cash burn, which are good indicators that Qantas will be able to outlast this current situation. Operating at around 5 per cent of pre-crisis levels domestically, and 1 per cent on an international basis were seen as consequence of coronavirus. However, due to the relatively low Australian human impact of the pandemic and the country’s fast response, a recovery in aviation demand is expected by Qantas' leadership.
Due to the coronavirus pandemic; the entire aviation sector in Australia is now experiencing some turbulence. Looking towards the future; this may lift the industry much higher, but in the meantime, a consolidation period is being capitalised upon. Currently, the ACCC has raised concern in a situation where Qantas would be the majority stakeholder in a competitor's business. The acquisition of Alliance seems to be a timing blunder on Qantas' part. If Qantas sought ACCC approval before becoming stakeholders in Alliance, the issue in question would be a standard merger review.
Due to processing and timing, the ACCC has been hailed by various stakeholders to inspect the situation further. Alliance's status as a small airline competitor to Qantas has triggered a possible conflict of interest. The regional market relies upon Alliance's Fly In Fly Out (FIFO) service to support miners, of which, there are not many consumer options.Controlling a competitor's majority shares raises concern by the possibility of directing operational decisions towards non-competition.
Key concerns are that the acquisition has affected Alliance Airlines' customer's perception and service offering. This could affect future investment opportunities negatively. The extent to which Qantas would lessen competitiveness with Alliance airlines could highlight a growing duopoly which would impact FIFO customers. Finally, there is a concern for the future development of Alliance Airlines and what it could mean should the majority stake held by Qantas act to block that development.
By Timothy Geldard
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