The competitive topography of air transport in Australia changed today.

Virgin Blue gained ACCC approval of a trans Tasman alliance with Air New Zealand, and a provisional approval of its alliance with Abu Dhabi based Etihad.

Jetstar also began flying an Australian registered A330 based in Singapore using Singapore rates of pay and conditions on the Melbourne-Singapore route.

The developments accelerate an already fast moving contest between a single branded Virgin Blue group of carriers, and the sharply divided two brand, full service or commodity priced services being offered by the Qantas group under the Qantas and Jetstar brands respectively.

It also marks the physical avoidance of the limitations of the Qantas Sale Act on the shifting overseas of Qantas assets and jobs, using the Jetstar subsidiary which came into being 11 years after the act became law and is now the fastest growing part of the Qantas Group.

Yet to be resolved is American resistance to Virgin Blue gaining approval for the third foundation stone of its future expansion strategy, which is its plans for a trans Pacific and network sharing joint venture with Delta, a proposal currently in limbo because of US Department of Transportation disapproval.

What will consumers see as a result of these developments?

While the unified identity of Virgin Blue and V Australia has yet to be revealed, it means that Virgin Australia per se is now acting as a single entity to offer a full range of low fare to premium seats on all of its flights, compared to the segregation of Qantas group offerings to the low cost Jetstar brand on some flights, or the multi class Qantas offering on others.

Flying to Europe, Virgin Blue and Etihad are free to price fix and jointly sell their multi class long haul flights to Abu Dhabi, where multiple connections to a wide and growing range of flights to London and other UK and European and Middle Eastern cities are available on Etihad services.

On the ultra competitive trans Tasman routes, Air New Zealand and Virgin Blue group jets form part of a large shared network of flights including connections on each other’s domestic Australian or New Zealand services.  The primary competition will be from the Qantas group, which is  split between Qantas and Jetstar flights across the Tasman, with offers of Jetstar flights within New Zealand.

The ACCC’s conditions for reversing its earlier resistance to the Virgin Blue/Air NZ alliance include the compulsory increasing of the total number of seats and services that Air New Zealand and Virgin Blue jets (branded as Pacific Blue) currently offer across the Tasman.

The long haul ramifications of today’s decisions and events are also significant.

The Qantas plan is to base a fleet of Jetstar branded, Australian registered wide bodied jets at Singapore’s Changi Airport, which will be piloted and cabin crewed at Singaporean rates of pay and labor conditions.

These jets will in due course fly between Singapore and European cities that Qantas either abandoned years ago, or declines to serve today on the grounds that its full service multi-class product is uncompetitive.

The Qantas group strategy has the advantage of developing new routes on which it keeps all the revenue, but it takes time to implement. It has the additional advantage of capturing for Qantas non -Australian originating traffic that can be attracted to the Changi hub by the feeder services of its Singapore based Jetstar Asia network.

The Virgin Blue strategy over Abu Dhabi has the disadvantage of involving the sharing of revenues with Etihad, but the advantages of rapid implementation and network growth.  It does not give Virgin Blue access to Asia originating traffic for its services to Europe, something that could only achieved by some form of future partnership or merger with a non-Australian carrier.

Whatever the results either Australian airline group get from these strategies, there is no reason to doubt that fares between here and Europe will remain keenly priced, and that the absurdities of connecting to Europe via Heathrow on British Airways services will come to a long overdue end.

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