The US Department of Transportation has tentatively blocked a bid by Qantas and American Airlines to cooperate more closely and pool revenue on flights between the US and Australia.
American Airlines has announced it will appeal and it has two weeks to do so. In its ruling, the Department of Transportation (DOT) said there was a “high risk of competitive harm” in allowing the largest US carrier and the largest Australian carrier to enter into a joint venture, the Dallas Morning News reported.
Qantas and American Airlines have been proclaiming their new, closer alliance for over a year. In June 2015, they announced another “significant expansion of their longstanding relationship”, which would see the US carrier fly from Los Angeles to Sydney for the first time and Qantas return to San Francisco.
A Qantas statement at the time on the proposed closer alliance said: “Subject to approval from regulators, this expansion represents a natural evolution of the existing alliance between Qantas and American, providing the airlines with a platform for further growth, closer commercial ties, and an even more seamless customer experience on routes between North America and Australia/New Zealand.”
Australia’s Competition and Consumer Commission (ACCC) swiftly gave interim approval for the two new Qantas and American Airlines services.
This February, The ACCC issued a final determination re-authorising Qantas and American Airlines to continue to coordinate their operations on trans-Pacific routes for a further five years “in respect of marketing and sales, freight, pricing, scheduling, distribution strategies including agency arrangements, yield and inventory management, frequent flyer programs, lounges, joint procurement, and product and service standards.
“The ACCC considers this alliance would be likely to result in continued public benefits for passengers travelling between Australia and the US through enhanced products and services including new frequencies and destinations, more online connections, better scheduling, greater loyalty program benefits, and improved lounge access,” ACCC Commissioner Roger Featherston said.
The US DOT, however, views it very differently, even though American already operates similar agreements with Japan Airlines on trans-Pacific flights and with British Airways, Iberia and Finnair for transatlantic flights.
On the face of it, the ruling places Qantas at a disadvantage against its competitors, even though it is the dominant carrier in the market. Delta Air Lines and United Airlines already enjoy joint ventures in the Australian market through their respective partners, Virgin Australia and Air New Zealand.
“We’re very disappointed in the [DOT’s] tentative decision and will file an objection,” American confirmed on Friday.
American continued: “Other airlines have the significant competitive advantage of antitrust immunity in the US-Australasia market. With the same opportunity, American and Qantas will be able to compete more effectively and increase consumer benefits in the market.”
American launched service from Los Angeles to Sydney in late 2015.
“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,” the DOT said in its decision to block the proposal.
Because Qantas enjoys a dominant position in the US/Australia market (with about 41% of seats in the year ending October 2015, according to DOT reckoning) the DOT found the proposed venture by Qantas and American Airlines to be potentially anti-competitive.
The proposal would “substantially reduce competition and consumer choice, without producing sufficient countervailing public benefits,” the DOT stated.
Written by Peter Needham