Australia’s competition regulator, the Australian Competition and Consumer Commission (ACCC), is likely to block a proposed partnership agreement between Qantas and Japan Airlines. The ACCC believes the agreement could undermine competition and negatively impact passengers on routes between Australia and Japan.
“Granting this authorization would seem to eliminate any prospect of Qantas and Japan Airlines competing for passengers traveling between Australia and Japan, as they did before the COVID-19 pandemic. This elimination of competition would benefit the airlines at the expense of consumers,” said ACCC Chairman Rod Sims on Thursday.
Qantas and Japan Airlines want to deepen their longstanding relationship
Qantas and Japan Airlines, both members of the oneworld alliance, have long cooperated on routes between Australia and Japan. Last year, the two airlines moved to deepen that relationship. They want to join forces to coordinate marketing and sales, pricing, scheduling, distribution strategies and agency arrangements, yield and inventory management, frequent flyer programs, lounges, joint procurement, product and service standards, and cargo.
In their submission, Qantas argued the deal, formally called a Joint Services Agreement (JSA), would increase frequencies and improved connectivity over a more diverse number of city pairs between Australia and Japan, provide a more certain and sustainable reinstatement of services operated by both carriers on routes between Australian and Japan, enhance frequent flyer benefits, and offer a variety of fare products and price points to consumers. But the ACCC disagrees.
“The COVID-19 pandemic has severely impacted the airline and tourism sectors. Protecting competition in the airline industry is critical to ensuring recovery in the tourism sector, once international travel restrictions ease,” Mr Sims said.
“This proposed coordination would appear to undermine competition significantly by reducing the prospect of a strong return to competition on the Melbourne – Tokyo, and Sydney – Tokyo routes when international travel resumes.”
The Qantas Group and Japan Airlines owned the bulk of the market in 2019
Before international travel halted, Jetstar, Qantas, Japan Airlines, and ANA all competed on two-way routes between Australia and Japan. Virgin Australia was due to enter the market with its now-abandoned plans to fly between Brisbane and Tokyo Haneda. In the last year of normal travel, 2019, 1,562,465 passengers moved through Australian airports to or from Japan. That same year, there were 6,698 nonstop flights between the two countries.
In 2019 Japan Airlines and the two Qantas Group airlines, Qantas and Jetstar held the majority of the market. 1,369,131, or 87.6% of the 1,562,465 passengers who flew nonstop between the two countries, flew on one of these three airlines, with ANA mopping up the remainder.
Qantas and Jetstar discontinued their international flights to Japan early in 2020. Both Japan Airlines and ANA have maintained scaled-back services to Australia. Qantas argued the JSA would be key to restoring its flights on routes between the two countries.
“We’re obviously disappointed with a negative draft decision,” says Qantas in a statement. “Not only would this partnership be good for our business, it would be good for consumers and help key parts of the tourism industry recover.”
Qantas not giving up yet
But it isn’t over until it’s over. This is a draft ACCC determination, with the final determination due in June. In the meantime, Qantas plans to put its best foot forward to persuade the ACCC to alter course. The Qantas statement notes;
“It’s our job to convince the ACCC of the merits of this partnership ahead of their final
determination. We’ll review their draft decision closely and respond to their concerns, as
we’ve done in the past.”
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