US knocks back Qantas, American alliance plans

The US Department of Transportation has tentatively rejected plans to expand the partnership.

A Qantas-American alliance would control of about 60pc of airfares between the US and Australia.

Qantas has a fight on its hands to save its planned alliance with American Airlines after the US Department of Transportation tentatively denied plans to expand the partnership on grounds it was anti-competitive.

The decision not only leaves what was supposed to be a lucrative alliance on the brink of collapse, but it means Qantas and American are now scrambling to convince the department to overturn the preliminary decision.

In deciding to “tentatively” deny the deal, the DoT, which had been reviewing the implications of the expanded alliance for more than a year, said an expanded alliance would create an anti-competitive environment through its control of about 60 per cent of airfares between the US and Australia.

The application would have expanded the partnership between Qantas and American to a full alliance similar to the one they have with Emirates.

These types of “metal-neutral” alliances allow airlines to co-ordinate schedules and sell seats on each other’s flights, meaning they can split the revenue and costs regardless of which carrier’s plane is used on the route. But the DoT said the proposed alliance would reduce competition and consumer choice across the Pacific.

“By combining the airline with the largest share of traffic in the US-Australasia market with the largest airline in the US, the proposed alliance would reduce competition and consumer choice,’’ it said. “Qantas is by far the largest competitor operating between the US and Australia, and American is likely the only remaining US airline positioned to enter and expand services in a competitively significant and timely manner, given its resources and network size.’’

The DoT is calling for comments and objections on its decision before making a final ruling. Submissions must be made to the department by December 2.

It’s understood representatives from Qantas and American have requested meetings with the DoT to understand its concerns.

The denial of the alliance expansion will not affect Qantas’s 25-year old codeshare relationship with American.

Qantas and American said they were disappointed and would “closely review” the order before filing objections.

“The enhanced partnership provides a greater choice of destinations, a more co-ordinated network and schedule,” a Qantas spokeswoman said. “The trans-Pacific is a highly competitive market served by a number of carriers and the partnership … can support and strengthen the economic, cultural and tourism ties between Australia and New Zealand with the US.”

The rejection comes after the Australian Competition and Consumer Commission in February granted a five-year approval for the alliance.

Rivals to Qantas and American, such as Hawaiian Airlines, say the tie-up will damage smaller airlines trying to compete.