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Qantas and Air NZ spar over start of QF/AA closer deal

July 7, 2015 Aviation, Headline News No Comments Email Email

egtmedia59Air New Zealand and Qantas are busily arguing for and against the co-ordinated increase in capacity proposed by Qantas and American Airlines on the trans-Pacific route in December and beyond.Last month, American Airlines said it would begin a daily non-stop service between Sydney and Los Angeles. Qantas said it would run B747s from Sydney to San Francisco. Both moves are scheduled to happen in time for the Christmas peak season, with American using B777-300ERs non-stop Sydney/LAX, while Qantas will fly to SFO five or six times weekly using the B747-400 aircraft that currently augment its A380 services to Los Angeles. (See: American Airlines daily SYD/LAX and Qantas flies SFO)

The developments herald a new, closer relationship between partners Qantas and American Airlines and, as part of the deal, their four-year-old joint will notch up into full route revenue-share status. Regulatory approval from the Australian Competition and Consumer Commission (ACCC) is required for that, and that’s where the submissions come in.

Air New Zealand is seeking to delay the move and Qantas, obviously, is arguing that the ACCC should approve it.

“Air New Zealand considers that it is not appropriate to grant interim authorisation for the activities proposed by the applicants,” the New Zealand carrier has argued.

“The proposed activities either do not require authorisation or are not appropriate without a full and considered analysis by the ACCC.”

Air New Zealand argues that interim authorisation by the ACCC “is neither necessary nor required urgently”.

“There is no compelling reason why the agreement has to commence in December, given existing arrangements. The parties already have authorisation to coordinate on designated routes under the Original JBA, which is valid until June 2016. If either party wishes to commence a Sydney-San Francisco service, it can do so alone or with the support of the other through codeshare, block space, wet lease or other arrangements until authorisation of any deeper cooperation is obtained.”

Air New Zealand maintains that the parties “have not provided compelling evidence that the proposed conduct will not cause competitive harm”.

It understands that the conduct proposed “includes deeper cooperation between the parties on routes such as Sydney-Dallas Fort Worth, which is not currently operated by any competing airline.

“In our view, this deeper cooperation requires further consideration by the ACCC before authorisation is granted. Given the changes to the operating environment since the 2011 authorisation, and the successful reorganisation of American Airlines since that time, the ACCC should carefully consider whether American Airlines would enter any of the joint venture routes in the absence of the alliance.

“Finally, the ACCC should analyse the impact of the alliance on a route-by-route basis, which the parties have failed to do in their submission.”

Qantas has lodged a submission arguing to the contrary, and claiming that “Air New Zealand would be a major beneficiary of any delay or dilution of success of the new services” being proposed.

“Air New Zealand claims that there is no compelling case for the launch of the new services in December 2015,” Qantas notes.

“December is the optimal time for the launch of the new joint services between Sydney and each of Los Angeles and San Francisco as it coincides with peak season for Trans-Pacific travel and is also when the relevant aircraft become available to American.

“Launching at this time will mean that the Applicants [Qantas and American] can capitalise on capturing increased traffic flows around this time of year, while also minimising the financial losses that would result from having available aircraft underutilised or idle.”

Qantas maintains that the closer agreement with American will not hurt competition “particularly given the intensity of competition on the Trans-Pacific Routes”.

“The fundamentally pro-competitive nature of the Proposed Conduct has been acknowledged and strongly endorsed by third parties commenting on the substantive application, including Tourism Australia, the Australian Federation of Travel Agents (AFTA), Sydney Airport Corporation Limited and Brisbane Airport Pty Corporation Limited,” it points out.

Qantas then gives the following examples:

  • Tourism Australia has commented that significant and sustainable growth in aviation capacity between the United States and Australia is critical to realising tourism objectives and Tourism Australia supports the addition of new services between the two countries that will result from the Proposed Conduct;
  • AFTA believes that the Proposed Conduct will deliver additional network benefits that are only possible through deep partnerships with antitrust immunity. Such benefits include increased capacity to Los Angeles, Qantas’ return to San Francisco and expanded codesharing in North America;
  • Sydney Airport stated that the Proposed Conduct would see an expansion of capacity and new services to San Francisco (a key gateway airport) and would lead to Sydney-Los Angeles becoming Sydney’s most competitive direct long haul international route with 5 carriers operating daily services; and
  • Brisbane Airport submitted that the strong performance of the Trans-Pacific Routes has been a ‘bedrock’ of the Australian visitor economy and that arrangements such as the Proposed Conduct should be supported.

Rivalry between the two carriers is increasing, with Qantas recently announcing the launch of Jetstar services between New Zealand regional cities, hitting Air New Zealand in its home market. The announcement of that depressed Air NZ share prices last month (see: Bold Jetstar plan threatens Air NZ’s domestic market)

Moves by American Airlines and Qantas to fly to Los Angeles via Auckland have also been mooted, which would break Air New Zealand’s lucrative monopoly on that route.

Written by Peter Needham

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