Australian regulator raises competition concerns on Qantas buying out charter operator

An aircraft appearance crew member cleans an aircraft as Qantas begins preparing and equipping planes for the return of international flights, in anticipation of Australia easing coronavirus disease (COVID-19) border regulations, at Sydney Airport in Sydney, Australia, October 21, 2021. REUTERS/Loren Elliott

SYDNEY, Aug 18 (Reuters) - Australia's competition regulator said on Thursday that Qantas Airways Ltd's (QAN.AX) proposed purchase of the remainder of charter operator Alliance Aviation Services Ltd (AQZ.AX) for A$610.8 million ($423.41 million) raised concerns.

"We are concerned that this proposed acquisition is likely to substantially lessen competition for air transport services to and from regional and remote areas in Queensland and Western Australia for corporate customers," Australian Competition and Consumer Commission (ACCC) Chair Gina Cass-Gottlieb said in a statement.

Alliance shares slumped 6.5% in early trading following her comments.

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A final decision is expected in November, the ACCC said.

Qantas has owned 20% of Alliance since 2019 but buying the remaining 80% would give it a dominant share of flying for resources industry customers, a market in which it competes against Virgin Australia and Cobham's National Jet Express, soon to be owned by Regional Express Holdings Ltd (REX.AX). read more

Many mining and oil and gas companies in Australia staff their operations using a fly-in/fly-out (FIFO) model rather than permanently basing their employees at remote sites, making the flying a lucrative business for airlines.

Qantas has offered Alliance investors A$4.75 a share for the remainder of the company in an all-stock deal. read more

Alliance shares had closed at A$3.55 on Wednesday, indicating investor scepticism that the regulator would approve the transaction.

Qantas Group Executive of Associated Airlines and Services John Gissing said on Thursday the airline would continue to work with the regulator to ensure any competition concerns were addressed.

Alliance represents only around 2% of total aviation industry capacity but it supplies around 30% of charter services, followed by Qantas with 23% and Virgin at 22%, Qantas said in a statement.

A Virgin Australia spokesperson said Qantas' proposed acquisition had serious implications for competition in Australian aviation and consumers would be impacted if competition was reduced.

Virgin and Alliance have had an agreement allowing them to jointly bid for FIFO business since 2017. The ACCC initially proposed to deny that deal on competition grounds but approved it in a final decision after comments from market participants.

Alliance also operates 14 jets on regional routes on behalf of Qantas and four for Virgin.

($1 = 1.4426 Australian dollars)

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Editing by Muralikumar Anantharaman and Jacqueline Wong

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