Competition watchdog approves extension of Qantas-Emirates alliance

Qantas may be dropping Dubai from its network next month, but its alliance with Emirates looks set to continue for another five years. (Rob Finlayson)

Australia’s competition watchdog has given the green light to Emirates and Qantas continuing their global alliance for a further five years despite some competition concerns on one trans-Tasman route.
The draft determination from the Australian Competition and Consumer Commission (ACCC) said the two carriers’ partnership covering destinations in Asia, Europe, Oceania, the Middle East and North Africa that was established in 2013 was “likely to continue to result in a range of public benefits”.
“Combining the networks of Qantas and Emirates provides customers with access to more flights and destinations under a single airline code and improves connectivity,” ACCC Commissioner Roger Featherston said in a statement on Friday.
However, Featherston said the ACCC was concerned that the alliance was likely to “significantly impact competition” on the Sydney to Christchurch route, noting that Qantas and Emirates’ only competition on the route was from the Air New Zealand/Virgin Australia trans-Tasman alliance.
As a result, the ACCC proposed Emirates and Qantas provide it with regular reports on seats and passengers flown, fares and route profitability.
“The revenue, cost and load factor information (seats flown versus passengers flown) will assist the ACCC to gauge during the term of the authorisation whether the applicants are reducing or limiting growth in capacity on the Sydney – Christchurch route to raise airfares,” the ACCC draft determination says.
“The condition would also allow the ACCC, at any time, to set a minimum level of capacity on the route. For example, if these reports indicated that the alliance was limiting the number of seats on this route to raise airfares, the ACCC would require the alliance to add extra seats.”
The ACCC draft determination said most of the public detriments it identified related to the Sydney-Christchurch route.
“The ACCC remains concerned as it was in 2013 that the alliance provides Qantas and Emirates with the incentive and ability to reduce capacity and raise airfares on that route, and that the constraint from other current or potential competitors is insufficient to prevent this.”
The ACCC said it considered adding a requirement for Emirates and Qantas to maintain a set level of capacity on the Sydney-Christchurch route.
However, it was conscious that any capacity commitment “set too high risks” of having excess capacity on the route, potentially crowding out other operators and raising barriers to entry.
“It could also result in an inefficient allocation of capacity which could artificially restrict growth on other routes and limit the Applicants’ flexibility to best match capacity with demand and overinflate growth on the route where capacity is required to be maintained,” the ACCC said.
Further, the draft determination said the ACCC considered the Air New Zealand/Virgin Australia alliance was “unlikely to sufficiently constrain the alliance on that route in the event that the alliance decided to reduce or limit growth in capacity on this route in order to raise airfares”.
“While it is likely that Virgin Australia/Air New Zealand would increase capacity in the event the alliance limited its capacity, it is unlikely that this would be sufficient to prevent an increase in airfares,” the draft determination said.
“Rather, given their substantial share of seats flown on these routes, it would most likely be in Virgin Australia/Air New Zealand’s joint interest to allow airfares to increase rather than to seek to take a significant share away from the alliance by increasing capacity and lowering airfares.”

Alan Joyce, Tim Clark and Qantas and Emirates cabin crew at the launch of the Qantas-Emirates alliance in March 2013. (Seth Jaworski)

When the ACCC approved the alliance in 2013, it included a condition the two carriers maintain at least their current level of capacity on four overlapping trans-Tasman routes.
At the time, Qantas and Emirates accounted for about 65 per cent of total passenger capacity between Australia and New Zealand. The ACCC said in 2013 it was concerned the alliance would have increased the ability and incentive to reduce or limit growth in its capacity in order to raise airfares.
In its application to the ACCC submitted in October 2017, the two carriers said new nonstop flights from Auckland to Dubai (on Emirates) and Doha (on Qatar Airways) had reduced the volume of connecting passengers between Australia and New Zealand.
Figures in the application showed there had been a 13 per cent reduction in connecting traffic between Australia and New Zealand as a consequence of these new long-haul services, among other factors. For Auckland-bound passengers, the decline totalled 20 per cent.
Further, the Dubai-headquartered Emirates dropped its Sydney-Auckland services in July 2017, and in March 2018 will reduce its trans-Tasman operations further when it ends Brisbane-Auckland and Melbourne-Auckland A380 flights.
The schedule change would leave Sydney-Christchurch as its sole Australia-New Zealand offering.
In their place, Qantas has boosted its schedule across the Tasman, scheduling extra flights from the three east coast capitals and upgauging some Boeing 737-800 narrowbody flights to Airbus A330 equipment.
In light of the changing market conditions, the pair called for the ACCC to remove any restrictions on trans-Tasman routes as part of its application.
Friday’s draft determination said the ACCC considered that the capacity conditions are “no longer required on these routes” between Auckland and Australia’s east coast capitals.
Meanwhile, the ACCC on Friday also approved an application for Jetstar’s Asian affiliates – Jetstar Japan, Singapore-based Jetstar Asia and Vietnam’s Jetstar Pacific to continue to coordinate with each other.
The Jetstar joint-venture airlines had also sought the ability to coordinate with their shareholding airlines Qantas, Japan Airlines and Vietnam Airlines on passenger and cargo services within Asia.

Japan Airlines is a major shareholder alongside Qantas in Jetstar Japan, while Vietnam Airlines is the majority owner of Jetstar Pacific.
The ACCC noted the re-authorisation did not extend to allowing coordination between the owners of any of the joint venture airlines.