AUSTRALIA: Virgin Australia Signs Charter Partnership With Alliance Aviation

Virgin Australia has agreed on a long-term strategic partnership with Brisbane-based fly-in fly-out operator Alliance Aviation Services that will see both airlines work together to build up their charter businesses amid tough times in the mining and oil and gas industries.

Under the proposed deal, which will need approval from the competition regulator, existing charter contracts will remain with the current operator but all future contracts will be operated as part of the partnership.

The pair will also enter agreements to procure services for each other on a preferential basis, including aircraft, spare parts, maintenance and ground-handling services.

Virgin chief executive John Borghetti said the deal would allow both airlines to boost their competitive position in the charter market, where they compete against players like QantasLink, Cobham Aviation Services and Airnorth.

Alliance managing director Scott McMillan said there was "a great deal of logic" in partnering with Virgin.

Virgin had signed a 10-year strategic alliance with Perth-based charter operator Skywest in 2011, but a year later Virgin launched a $100 million takeover of Skywest, which was completed in 2013. Virgin used Skywest as the basis for the formation of Virgin Australia Regional Airlines.

Virgin and Alliance both use Fokker aircraft in their charter operations. Alliance last year agreed to buy 21 Fokker jets from Germany's Lufthansa Group for $20.7 million in cash and shares in a move that will give it spare parts to help its fleet run longer, expand operations into Europe and, potentially, sell the popular aircraft to operators like Qantas and Virgin.

In its half-year results release on Monday, Alliance said the fly-in fly-out industry continued to be challenged by its operating schedule, contract margin and payment terms as a result of the downturn in the resources market. The company decided not to declare an interim dividend after reporting a 35 per cent fall in net profit to $4.1 million.

Alliance said flying hours had been stable, but revenue fell by 10 per cent because like other charter operators, it passed on the fuel price savings to its customers. The company said the second-half performance was forecast to be better than the first half given the current schedule.

The downturn in the resources industry has placed pressure on all charter operators. Mr Borghetti said last week that Virgin's regional operations "had performed well against the backdrop of a slowing resources sector".

Data from the Bureau of Infrastructure, Transport and Regional Economics showed the number of passengers on fixed-wing charter operations fell by 6.8 per cent in November 2015 from the same month a year earlier.