Australia’s International Air Services Commission (IASC) says it plans to knock back Qantas’s request to expand its codeshare agreement with Air Niugini on Australia-Papua New Guinea (PNG) routes.
In February, Qantas sought to continue existing arrangements where the two carriers codeshare on the Sydney-Port Moresby route (operated by Air Niugini) and the Brisbane-Port Moresby route (operated by both Qantas and Air Niugini).
Further, the application to the IASC also requested approval to add Qantas’s QF code on Air Niugini’s nonstop Cairns-Port Moresby and Townsville-Port Moresby services.
However, the IASC said in a draft decision published on Monday it proposed rejecting the application to maintain codesharing on the Brisbane and Sydney to Port Moresby routes, as well as Air Niugini’s flights from Cairns and Townsville to the PNG capital.
“The Commission’s finding is that Qantas’s proposed free-sale codeshare arrangement with Air Niugini would reduce competition by increasing barriers to entry on the city pairs served only by Air Niugini (Cairns-Port Moresby, Sydney-Port Moresby, Townsville-Port Moresby) and by risking the withdrawal of Virgin Australia from the Brisbane-Port Moresby sector, where both Qantas and Air Niugini offer parallel services,” the IASC draft determination said.
“This being the case, the Commission considers that it would not be of benefit to the public to approve Qantas’s application.”
The Qantas application was vigorously opposed by Virgin Australia, which is the only other airline offering nonstop flights between Australia and PNG.
Virgin Australia said in its submission to the IASC the proposed codeshare was the “single most significant barrier to entry on the PNG route”.
The airline recently reduced its Brisbane-Port Moresby service with Boeing 737-800 equipment to five flights a week, from six a week previously.
The IASC draft decision noted Virgin Australia’s marketshare on Australia-PNG routes fell from 18.1 per cent in 2016 to 12.9 per cent in 2017.
Further, Virgin Australia’s average load factor dropped from 48.1 per cent to 34.7 per cent over that same period, with the total number of passengers carried falling by 29 per cent.
Meanwhile, Qantas improved its average load factor 4.3 percentage points to 56.8 per cent, while Air Niugini’s average load factor rose 0.6 percentage points to 54.1 per cent.
“The significant fall in Virgin Australia’s load factor, at the same time that Air Niugini and Qantas have been able to improve on their previous load factors, suggests that the free-sale codeshare has benefited Qantas and Air Niugini at the expense of Virgin Australia,” the IASC draft decision said.
“This being the case, the Commission is now of the view that the free-sale codeshare arrangements would not be of benefit to the public given the possible adverse implications for competition on the sector.”
The IASC said its assessment of the passenger data showed that the “re-entry of Qantas in its own right on the Brisbane-Port Moresby sector, when supplemented by a free-sale code share with Air Niugini, has changed the competition dynamics between the airlines”.
“If Virgin Australia’s position is further weakened by the continuation (and expansion to other routes) of the codeshare arrangement between Qantas and Air Niugini, the Commission sees a risk that Virgin Australia may exit the sector, leaving only Air Niugini and Qantas operating as partners under a codeshare arrangement,” the IASC draft decision said.
“In the absence of operations by Virgin Australia, there would be a substantial lessening of competition on the sector.”
The IASC allowed Qantas and Air Niugini to codeshare on the Brisbane-Port Moresby and Sydney-Port Moresby route in October 2016.
However, the approval was only until June 30 2018, with the IASC saying at the time it would monitor market conditions closely to assess the impact of the new codeshares. Further, Cairns-Port Moresby was not included in the IASC ruling. Since the decision, Air Niugini launched Townsville-Port Moresby in April 2017.
Submissions in response to the draft decision are due by May 14.