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Qantas and Air Niugini proposed expanded codeshare rejected

written by australianaviation.com.au | May 1, 2018

A file image of an Air Niugini Boeing 737-800 at Sydney Airport. (Rob Finlayson)
A file image of an Air Niugini Boeing 737-800 at Sydney Airport. (Rob Finlayson)

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.

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10 Comments

  • Craigy

    says:

    Champagne corks maybe popping in Virgin HQ this evening but the determination will make no difference to Virgins load factor based on comments on the previous story on the Moresby route code share.

  • James

    says:

    It was pretty surprising how keen people were to see Virgin fail in the previous article… If Virgin were to pull out of the market, prices would increasing significantly

  • Andy

    says:

    What nonsense the IASC talks. The code share has been around since 2002 yet Virgin’s nose dive on the Brisbane route only started in November 2016 when Qantas put their own metal up against them. Virgin’s problem is that nobody wants their product when they can fly Qantas or Air Niugini, Until Virgin improves said product they will continue to lose passengers to Qantas regardless whether there is a code share or not. What is stopping Virgin from doing their own code share with PNG Air anyway ?
    As for the other routes, who would have thought the rocket scientists at IASC would be capable of making an even dumber decision than they did back in 2016 by granting Air Niugini a monopoly on the Cairns route ? Well now they’ve surpassed even themselves by doing the same to Townsville and Sydney !! Which just goes to prove that government bureaucrats should never be allowed to meddle in the real world. And where is this queue of other airlines that are somehow being prevented by a proposed code share from serving regional routes like Townsville or Cairns to Port Moresby ?

  • Vannus

    says:

    It’s ‘planely’ obvious which air carrier/s passengers’ want to fly to PNG.
    It’ll be interesting to see how long before Virgin stops altogether on that route.
    Poor load factors are not the stuff of profits.

  • Craigy

    says:

    @ James Looking at the load factors of both PX and QF, it suggests the market is very limited and therefore demand is probably very price sensitive. Any appreciable increase it airfares will probably result in a commensurate drop in load factor. The current air fares are most probably a reflection of the average load factor and the obvious need to cover the costs of providing the service. I’d say the profit on the BN – PY route a probably small if any.

  • Hutch

    says:

    @Andy – would you care to explain how the IASC granted “Air Niugini a monopoly on the Cairns route?” and how they are “doing the same to Townsville and Sydney”.

  • Scott

    says:

    Brilliant news well done IASC an obvious outcome might I add, an approval would have been laughable to claim competition would have increased or “this is in the customers benefit”.
    To have such vast chunks of the pie in all markets and just keep wanting more and more, the balance is already way out of whack in Oz Aviation.

  • Raphael NOIPO

    says:

    Prices have gone over the roof by Air Niugini on the Port Moresby to Cairns route. Where there was competition prior to 2016 the fares were reasonable. We need a fair go!

  • GBRGB

    says:

    Guess we will see perennial whingers Virgin offering TSV – POM flights soon, and pigs might fly, what a disgraceful decision , really have to question the people making these decisions.

  • Tony

    says:

    I am a regular passenger on the Port Moresby/Cairns route. The relative authorities have no idea. When Qantas stopped servicing the route the subsequent monopoly by Air Niugini has led to increased pricing and reduced services. On many occasions it’s cheaper to fly POM/BNE.

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