Alan Joyce ups the stakes for Qantas-China Eastern alliance
Qantas has warned a decision by the ACCC to reject its alliance with China Eastern could leave some operations unsustainable.
Qantas has warned a decision by the competition regulator to reject its alliance with China Eastern could leave its operations marginalised and unsustainable in China to the detriment of Australian tourism and trade.
Chief executive Alan Joyce yesterday warned the Australian Competition & Consumer Commission faced a choice between marginalisation and growth as it responds to increasing pressure to reconsider its rejection of the alliance.
Mr Joyce told The Australian the airline was not returning its cost of capital on the assets it employed to sustain its Sydney-Shanghai service amid stiff pricing competition from other Chinese hub carriers, as well as increasing access to Chinese destinations by hubs such as Singapore, Hong Kong and Kuala Lumpur.
Arguing the ACCC had misread the Chinese market, he said the competition from other hubs and the lack of a return made it hard for Qantas to invest more capital in the Sydney-Shanghai route to achieve a turnaround.
But he said the partnership would bring benefits to consumers and the airlines. “The whole intention of this partnership is to grow, that’s what we’re aiming to do,’’ he said. “What we believe will happen is that we can be more effective competition to the other hubs by working with China Eastern.”
The comments came as the alliance partners this week lodged a strongly worded submission warning of the flying kangaroo’s dwindling prospects if it maintained its rejection.
The submission accuses the ACCC of ignoring the realities of regional dynamics with a narrow focus on the Shanghai-Sydney route that fails to take into account the rapid growth and evolution of the market, particularly changes to allow additional capacity between Australia and China.
“The proposed conduct facilitates Qantas’s growth in the Australian-China market in a way that would not otherwise be possible,’’ the submission says.
“By being able to expand its product offering by selling China Eastern’s services and co-ordinating complementary customer propositions, Qantas can improve its profitability and retain an operating presence to China in the long-term without the need for significant capital outlay.”
The commission rejected the tie-up because it believed the dominance of the partners on the Sydney-Shanghai route, where they would have 80 per cent market share, would give them an ability to reduce capacity and raise fares. It argued this outweighed any public benefit.
But the draft decision has attracted a slew of critical submissions from airports, tourism operators and even the Qantas pilots’ union and rival Air China. Foremost among these was a submission from Infrastructure Department’s aviation industry policy branch general manager, Stephen Borthwick, criticising the ACCC for being too narrowly focused and arguing the proposed alliance would be a positive for the Australian economy that was consistent with government policy. The proposal for Qantas and China Eastern to co-ordinate their services between Australia and China was signed at a high-level ceremony in Canberra in November attended by Tony Abbott and China’s President Xi Jinping.
The government argued the alliance would benefit Australian consumers by improving co-ordination of schedules and frequencies, sharing frequent flyer benefits between the two airlines, and allowing Qantas to offer its customers better access to destinations within China by reducing connection times for onward flights from Shanghai.
The Qantas submission, backed by a CAPA Centre for Aviation analysis, argues the ACCC failed to appreciate the degree of competitive restraint this imposes on the proposed alliance. It also rejects as unfeasible a “hypothetical” suggestion by ACCC chairman Rod Sims that it would be easier for Qantas to get approval if it switched to a new hub with an alternative carrier such as China Southern.
Notwithstanding the fact this would give the partners an even bigger market share between Australia and China Southern’s Guangzhou hub than it would have in Shanghai, the Qantas-China Eastern alliance is the preferred option of the Chinese government.
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