Australia’s Competition Czar Blocks Qantas And JAL Joint Venture

Australia’s competition czar, the Australian Competition and Consumer Commission (ACCC), has blocked a joint venture proposal between Qantas and Japan Airlines. On Monday morning, the ACCC said the proposed agreement did not pass the public benefits test.

The Australian Competition & Consumer Commission has blocked a proposed joint venture between Japan Airlines and Qantas. Photo: Qantas

“Airlines have been severely impacted by the pandemic, and this has been a very difficult period for them. But preserving competition between airlines is the key to the long-term recovery of the aviation and tourism sectors, once international travel restrictions are eased,” said ACCC Chairman Rod Sims in a statement.

“We’re obviously disappointed with this decision,” says Qantas’ Andrew David. “A closer partnership between Qantas and Japan Airlines would have meant more routes, better flight connections, and more benefits to frequent flyers. None of these benefits will be realized following the ACCC’s decision.”

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Joint venture proposal does not pass the ACCC’s pub test

Qantas has a longstanding relationship with its oneworld buddy Japan Airlines. In late 2020, the two airlines proposed upgrading their existing relationship to joint venture status. The proposal included an expanded codeshare relationship and optimized schedules on flights between Australia, New Zealand, and Japan, streamlined processes for disruption management, investments in product and service inflight and on the ground, as well as coordination of pricing, schedules, sales, and tourism marketing to develop new and improved travel products.

In May, the ACCC flagged concerns in a draft decision that denied interim authorization and raised concerns about the anti-competitive nature of the proposed joint venture.

The problem for Qantas and JAL is that they normally dominate the airline market between Australia and Japan. In the last year of normal flying, 2019, the Qantas Group and JAL handled 87.6% of the passengers flying nonstop between the two countries. All Nippon Airways mopped up the rest.

“The ACCC concluded that granting the authorization would not only remove competition between Qantas and Japan Airlines, it would make it very difficult for other airlines to operate on routes between Australia and Japan,” Monday’s ACCC decision reads.

Before the travel downturn, Japan Airlines flew to Sydney and Melbourne. Photo: Getty Images

Supporters and detractors of the proposed joint venture

Virgin Australia, who were slated to begin flights to Japan before the travel downturn, strenuously objected to the proposed joint venture. In a March submission to the ACCC, Virgin Australia said the joint venture would make it more difficult for other airlines to establish and sustain commercially viable flights between Australia and Japan.

“In the post-COVID-19 environment, it is particularly important that the foundations for longer-term competition are not displaced and the potential for new entry is not foreclosed,” Virgin Australia’s submission read.

All Nippon Airways did not make a submission to the ACCC. However, multiple Australian Airports and tourism bodies supported the joint venture between Qantas and Japan Airlines. They were banking on more flights and more passengers once flying normalized again.

“We accepted that there was likely to be some short-term benefits from the alliance being able to jointly reinstate services more quickly when borders are reopened, which may initially stimulate tourism. However, the longer-term benefits of competition between airlines are cheaper flights and better services for consumers, which is vital to the recovery of tourism over the coming years,” Mr Sims said.

Virgin Australia strenuously objected to the proposed joint venture between Qantas and Japan Airlines. Photo: Getty Images

Offer of additional flights and routes not enough to sway the ACCC

Both Qantas and Japan Airlines attempted to sway the ACCC by offering new flights and new routes between Australia and Japan. This included launching Qantas flights between Cairns and Tokyo. While the ACCC liked that idea, they suggest Qantas starts the route at a time determined by commercial factors in a competitive environment rather than the protections afforded by a joint venture.

“This is particularly unfortunate for Queensland and Cairns, which would have benefited from a direct Qantas route to Tokyo that would have seen a lot of travelers wanting a premium experience,” Andrew David said on Monday. “We explained that dynamic to the ACCC at length, and we disagree with their assessment that the route is viable without the alliance.”

Should the ACCC have allowed the joint venture or was their decision the right one? Post a comment and let us know.