ACCC setback for Qantas’ plans for China market

THE national carrier has moved to get a bigger share of the growing Chinese market, but the competition watchdog says the plan won’t fly.

Alan Joyce, chief executive officer of Qantas Airways Ltd., speaks during a news conference in Sydney, Australia, on Thursday, Aug. 28, 2014. Qantas, Australia's biggest carrier, forecast a return to profit after posting a record loss as a domestic market share fight with Virgin Australia Holdings Ltd. eases. Photographer: Brendon Thorne/Bloomberg via Getty Images

A PROPOSED alliance between Qantas and a major Chinese carrier would reduce competition on Australia-China routes and lead to higher airfares, the consumer watchdog has found.

The Australian Competition and Consumer Commission has released a draft decision proposing to deny authorisation for Qantas and China Eastern to coordinate their operations.

ACCC says no ... Qantas’ plans to team up with China Eastern have been dealt a blow. Picture: Brendan Thorne/Bloomberg.

ACCC chairman Rod Sims said an agreement was “likely to result in significant public detriment by giving the airlines increased ability and incentive to limit capacity and/or increase airfares on the Sydney-Shanghai route”.

“The ACCC understands Qantas’ desire to form an alliance with a Chinese airline to establish a gateway to North East Asia,” said Mr Sims.

“However the ACCC’s concern is that they chose to do so with their main competitor on the one route between Australia and China on which Qantas operates direct flights.”

He said together, the two airlines accounted for more than 80 per cent of capacity on the Sydney-Shanghai route, and were the only airlines offering daily flights.

Alliance ... China Eastern runs flights between Sydney and Shanghai. Picture: Brendan Radke/News Corp Australia

“Competition between them will be greatly reduced under the proposed agreement,” Mr Sims said.

The commission is now seeking submissions in relation to the draft determination before making its final decision.

Submissions are due by April 8.

In a statement posted on the Qantas website today, both airlines said they were reviewing the draft determination.

The joint venture announced last November would “deliver better departure and arrival schedules, reduced transit times and a wider range of onward connections within China and Australia”, said the statement.

Leadership team ... Qantas International CEO Gareth Evans with Group CEO Alan Joyce. Picture: News Corp Australia

“As with other elements of the Free Trade Agreement, the partnership is expected to facilitate commerce between the two trading partners, including an increase in business traffic as well as taking advantage of the huge inbound tourism opportunities for the Australian market,” said the statement.

Qantas International CEO Gareth Evans rejected the suggestion the alliance would reduce competition.

“There are more than 20 airlines already providing services between Australia and mainland China and the sharp pricing on these routes demonstrates that the market is highly competitive,” Mr Evans said.

The ACCC is also considering a proposed Virgin Australia-Delta alliance on Australia-US routes.

Last week, Virgin Australia Group CEO John Borghetti warned Virgin’s LA services may become unviable if it was not able to team up with Delta.