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Texan flight hangs in balance for Qantas and American

February 28, 2018 Headline News No Comments Email Email

American Airlines and Qantas have filed a new application with the US Department of Transportation (DOT) seeking approval to form a joint business agreement between North America and Australia and New Zealand – with Qantas warning that it may cancel its A380 service between Sydney and Dallas/Fort Worth it the application doesn’t get the green light.

In a ruling in late 2016, DOT foresaw a “high risk of competitive harm” in allowing the largest US carrier and the largest Australian carrier to enter into a joint venture.

The carriers’ new application uses a sort of carrot-and-stick approach.

  • The carrot: If they get authorisation, American and Qantas say they will be able to launch new routes between the US and Australia and New Zealand.
  • The stick: A refusal, however, would leave them “no choice but to further reduce codesharing on their networks” which would in turn jeopardise the number of services and routes each carrier flies between the US and Australia and New Zealand.

The carriers say the proposed joint business deal will “significantly improve service, stimulate demand and unlock more than USD 300 million annually in consumer benefits that are not achievable through any other form of cooperation, including:

  • Up to USD 221 million in value from expanding codesharing between American and Qantas – opening more connections to more destinations.
  • Up to USD 89 million in value by offering a wider range of fare classes across each other’s networks, including lower fares and discounts.”

They say approval will also give American and Qantas the opportunity to launch additional routes between the US and Australia and New Zealand, “including new flights to city pairs currently not served by either carrier”.

“An expanded relationship will encourage significant improvements in the overall customer experience, including more improved frequent flyer benefits and investments in lounges, baggage systems and other infrastructure designed to better serve the carriers’ joint customers.

“All these benefits will stimulate significant demand for new travel – generating up to 180,000 new trips between the US and Australia and New Zealand every year.

“Critically, if the joint business is not approved, American and Qantas will have no choice but to further reduce codesharing on their networks. This will jeopardise the number of services and routes each carrier flies between the US and Australia and New Zealand.

“For example, Qantas may be forced to reduce the frequency of, downgauge or potentially cancel its A380 service between Sydney and Dallas/Fort Worth, and American may further reduce its services between Los Angeles and Sydney and Auckland. These routes rely on codeshare support from each airline’s feeder network via their respective hub cities to be economically viable.

“American and Qantas look forward to working together to deliver new routes, a more seamless travel experience, and greater access to lower fares under a joint business.”

In a tentative blocking of a similar bid by Qantas and American in November 2016, the DOT said:

“American is likely the only remaining US airline positioned to enter and expand services in a competitively significant and timely manner, given its resources and network size.”

In 2016 the DOT found that because Qantas enjoyed a dominant position in the US/Australia market (with about 41% of seats in the year ending October 2015, according to DOT reckoning) the proposed venture by Qantas and American Airlines would be potentially anti-competitive.

The proposal would “substantially reduce competition and consumer choice, without producing sufficient countervailing public benefits,” the DOT stated.

It then issued Qantas and American a tentative Show Cause Order proposing not to grant approval for their original application.

It was both airlines’ view that the 2016 decision did not take into account precedent, intense competition on the Trans-Pacific route and the benefits a closer relationship between the two carries had already delivered and would deliver going forward, including new routes.

The airlines committed to filing a new application after carefully reviewing the DOT order.

American launched service from Los Angeles to Sydney in late 2015.

The Australian regulator, the Australian Competition and Consumer Commission (ACCC) had already approved the alliance for five years when it fell foul of the DOT in 2016.

Written by Peter Needham

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