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Qantas hopeful but ACCC plans to squash its China deal

March 25, 2015 Aviation, Headline News No Comments Email Email

egtmedia59The Australian Competition and Consumer Commission (ACCC) plans to reject an application by Qantas and China Eastern to mount a joint venture.

The airlines have a code-share agreement already but they are proposing something much deeper that would let them coordinate pricing and scheduling between Australia and China. The ACCC feels that could serve to reduce capacity and push up fares on the vital Sydney-Shanghai route.

Qantas and China Eastern proposed their alliance in November, alongside the signing of the Australia-China Free Trade Agreement.

The ACCC remains unconvinced by their arguments and, in a draft decision, has advised that it proposes to deny authorisation for the proposed Joint Coordination Agreement between the two carriers.

The ACCC considers that the agreement is likely to result in significant public detriment by giving Qantas and China Eastern increased ability and incentive to limit capacity and/or increase airfares on the Sydney-Shanghai route.

“The ACCC understands Qantas’ desire to form an alliance with a Chinese airline to establish a gateway to North East Asia. However, the ACCC’s concern is that they have chosen to do so with their main competitor on the one route between Australia and China on which Qantas operates direct flights,” ACCC chairman Rod Sims said.

“Qantas and China Eastern together account for more than 80% of capacity (seats flown) on direct services on the Sydney- Shanghai route. They are the two major airlines on the route and the only airlines offering daily flights, and so the major competitive constraint on each other. Competition between them will be greatly reduced under the proposed agreement.”

The Sydney-Shanghai route accounts for around 24% of all direct flights between China and Australia.

The ACCC says it accepts the pact would result in some limited public benefits. In particular, under the agreement, Qantas would co-locate at China Eastern’s terminal in Shanghai.

“This would provide improved connectivity and convenience for Qantas passengers transferring to a China Eastern flight in Shanghai and would also result in cost savings in processing passengers and freight for Qantas and China Eastern,” the ACCC concedes.

“However, the range of travel options available to passengers for travel beyond Shanghai would not automatically be increased. Passengers who value this connectivity and convenience are already able to fly with China Eastern directly. Therefore, this public benefit will only be likely to arise for passengers who have a preference to fly with Qantas.

“The ACCC currently considers that these limited benefits will not outweigh the significant public detriment likely to result from Qantas and China Eastern coordinating their services on the Sydney-Shanghai route,” Sims said.

The ACCC is seeking submissions from interested parties in relation to its draft determination, before making a final decision. Submissions are due by 8 April 2015.

Authorisation provides immunity from court action for conduct that might otherwise raise concerns under the competition provisions of the Competition and Consumer Act (2010). Broadly, the ACCC may grant an authorisation when it is satisfied that the public benefit from the conduct outweighs any public detriment.

Qantas International chief executive Gareth Evans said that Qantas would continue to make its case.

It is within the ACCC’s power to authorise the proposal, to deny it, or to give qualified approval with provisos affecting aspects such as capacity.

Written by : Peter Needham

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