Etihad given preliminary approval for Virgin Blue tie-up

Partnership with Australasian operator could add dozens of destinations in the Oceanic region.

Etihad Airways has been given preliminary approval to enter a partnership with Virgin Blue, putting it one step closer to adding dozens of destinations in Australia and New Zealand to its network.

The Australian Competition and Consumer Commission (ACCC) has tentatively approved the code-sharing alliance between Etihad and the Australian airline.

The "ACCC is of the view that the alliance is unlikely to result in any public detriment given that Virgin Blue and Etihad currently do not directly compete on any routes", the regulator said.

The next step for the commission, before a final decision, is to seek additional submissions from the two airlines and other interested parties.

The partnership was "almost certain" to receive final approval, according to the Centre for Asia Pacific Aviation (CAPA), an organisation in Sydney that gathers data on the aviation industry.

"There was no opposition, with most parties in fact strongly supporting the application," CAPA said.

The two airlines collectively fly to more than 100 destinations, including 45 that Virgin Blue serves across Australia, New Zealand and the Pacific islands.

The deal is Etihad's most comprehensive and strategic alliance to date, and a key feature is the ability of both airlines' customers to earn and redeem frequent-flier miles on either carrier.

James Hogan, the chief executive of Etihad, said he was delighted with the draft determination. Etihad was "confident that this alliance will promote competition and generate benefits for travellers", he said.

Under the plans, direct service between Abu Dhabi and Australia will increase. From February next year, Virgin Blue's international arm, V Australia, will begin operating three weekly flights from Sydney to Abu Dhabi. This will give the two airlines a combined frequency of 27 weekly flights between Abu Dhabi and Australia. That includes a twice-daily service between Abu Dhabi and Sydney, a daily service between Abu Dhabi and Melbourne, and six flights per week between Abu Dhabi and Brisbane.

A year later, V Australia is scheduled to add three flights per week from Brisbane to Abu Dhabi, via Singapore.

Etihad had previously signed a code-sharing deal with Qantas but ended that relationship to develop ties with Virgin Blue. Analysts said an Etihad-Virgin Blue alliance could challenge Qantas' strong position serving the high-value market in corporate travel.

"The essentially domestic operations of Virgin Blue Group and the long-haul international services of Etihad are to be linked, delivering Virgin Blue an extensive virtual network and providing Etihad with extensive behind-gateway domestic access," CAPA said.

"In the process, both carriers will not only have extended networks, but they will also be in a much improved position to attack the corporate market, over which Virgin Blue's large competitor, Qantas, predominates."