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ACCC cuts aspects of Qantas-Emirates plan

ACCC not fully convinced of merits of Qantas-Emirates tie-up in its proposal to grant conditional authorisation of the alliance

The ACCC has proposed to grant conditional authorisation of the Qantas-Emirates business partnership but has cut its proposed initial operation from 10 to 5 years, and will restrict its application on routes to New Zealand.

It also says the alliance is likely to be of material although not substantial benefit to consumers.

This is its statement:

The cutting of the initial lifetime of the partnership from 10 to 5 years will mean it will come up for renewal several years after Qantas has promised to restore its long haul international full service operation to profitability.

The ACCC glides politely over the fact that Qantas is exiting in its own right the Perth, Adelaide and Brisbane to Europe markets in favour of Emirates by pointing out in its statement that while there are detrimental effects in some overlapping markets there will be an increased competitive response from other airlines.

This is nevertheless acknowledgment by the ACCC that some consumers will lose the opportunity to fly Qantas in so far as Qantas will seek to sell those customers code shared seats on Emirates aircraft.

On television this morning ACCC chairman Rod Sims explained that the restrictions it would impose on the partnership across the Tasman were to prevent either Emirates or Qantas reducing their current capacity between Australia and New Zealand, thus reducing competition.

(Comment: This is arguably not what Virgin Australia or its trans Tasman alliance partner Air New Zealand might have wished for, since their position is that there are too many seats chasing too few customers.)

ACCC chairman Sims said: “We found that while the benefits of the partnership between Qantas and Emirates would not be large to consumers there would not be any real detriment to consumers because of the level of competition from other carriers.”

Sims also said “This is a serious tie-up between two major competitors on the routes to Europe….Our original concern was that Emirates might lift its fares to match those charged by Qantas … but there are just too many competitors for this to happen…If it did lift its fares people would have ample opportunity to make other choices.”

He said that the concern of the ACCC in applications like this was not about the profitability of a particular airline more than it was about the commission’s concern as to the consumer and tourism industry benefits of continued and increased competition.

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  • 1
    ltfisher
    Posted December 20, 2012 at 9:43 am | Permalink

    Looks to me as though the ACCC is saying to Qantas
    ‘go for it if you want to but we are’t really convinced that it’s in the interests of [your] customers’.

  • 2
    patrick kilby
    Posted December 20, 2012 at 12:56 pm | Permalink

    It seems more or less what was expected, and now interesting if QF will plug some of the access gaps Emirates has in Europe e.g moving to Berlin (new airport) in October (probably with A332s), and leave Frankfurt to EK; whether it will take EK A332s to plug capacity gaps before the 789s in 2016. I think this will see a strengthening of QF metal to continental Europe over the next 5 years given QFs greater access rights.

  • 3
    Geoff
    Posted December 20, 2012 at 3:30 pm | Permalink

    Rod Simms gave a very good answer on ABC TV this morning when asked if the new alliance would return Qantas to profitability – he was very careful to say that airline profits are of no interest to the ACCC – (smiling) even if the airline is Qantas, we are only interested in the affect of the alliance on the consumer.

    I, who am almost convinced that the big end of town runs Australia according to it’s own rules, was very pleased to hear that!

  • 4
    Posted December 20, 2012 at 4:49 pm | Permalink

    The thing I don’t understand about QF’s strategy is why it’s not launching routes from Brisbane, Perth and Adelaide to Dubai, which would allow through travel to London on QF metal and a QF/EK split for other destinations (much as Virgin Australia offers for Europe with Etihad).

  • 5
    Ben Sandilands
    Posted December 20, 2012 at 5:53 pm | Permalink

    Ah Yes. That would require an investment in 777-300ERs pending growing the routes to A380 size.

    The 787-8 couldn’t do Brisbane or Adelaide to Dubai with a viable payload, or amenity if you look at what the airlines are cramming into them. The 787-9, the one Qantas cancelled but keeps on option, may well prove a very, very good jet but that rework and stretch is at least three years off considering the options Qantas has for that year, and Boeing never designed it to compete with the higher capacity and lower unit cost 777-300ER either.

    A tragic stuff up.

  • 6
    SDMack
    Posted December 20, 2012 at 8:27 pm | Permalink

    johnb78:
    VA offer just 3 weekly services from SYD-AUH to connect with Etihad services onwards to Europe and the Middle East. The talk of a service to run from BNE to AUH (via SIN) came to nothing, and it appears this was handed over to Etihad instead as they are upping their frequency on that route to daily.
    Would be nice to see QF go to Dubai from more Australian cities, but I still see their 14 weekly frequencies as offering a better service from Australian ports than VA.

  • 7
    Aidan Stanger
    Posted December 20, 2012 at 9:33 pm | Permalink

    johnb78:
    What do you imagine Qantas would gain from doing so? With higher costs than EK, how could they hope to be profitable? Indeed why would enough people to fill a plane opt for the Qantas flight?

    Having said that, the same arguments apply to flights from Melbourne and Sydney too. Until Qantas starts flying where its competitors don’t, their international routes have little hope of making money.

    The possibility of Adelaide-Colombo-Dubai would allow Qantas to use A333s, but ss EK already do a Colombo-Dubai service, I doube it would be enough to enable QF to operate the route profitably.

  • 8
    Rufus
    Posted December 20, 2012 at 10:19 pm | Permalink

    Adelaide-Colombo? Really? How many people a day want to fly between Adelaide and Colombo? And crucially, of those, how many would want to fly in the pointy end?

  • 9
    patrick kilby
    Posted December 21, 2012 at 7:41 am | Permalink

    Ben are we sure the 789s have a higher unit cost than the 773s (they haven’t flown yet). Also we are forgetting that EK wants access to QFs traffic rights via a code share so 789s ex Brisbane makes sense and before that A332s ex Perth (I thin Dubai could be as complex a hub as Sin.

    We won’t see much of a change in schedules until October 2013 (the March final announcement is too late to change schedules) but it can add the code shares. The new schedules from October will be interesting in terms of freeing up A380 capacity that currently languishes for a day in Heathrow, and how Frankfurt is handled vis a vis QF and EK.

  • 10
    Posted December 21, 2012 at 2:05 pm | Permalink

    Ben: yup, not for the first time QF are bitten in the arse by their incomprehensible decision to avoid the 777. Out of interest, are there any 777-300ERs available for lease at the moment, in the event that Mr Joyce were sacked and replaced with someone competent?

    Aidan: I’d always pick QF over EK for the same route, and will do for SYD-LHR when the JV comes in. In terms of cost, the cost of staff (the only area where Emirates has an appreciable advantage over QF doing a Dubai stopover) is small and diminishing compared to aircraft and fuel, particularly for long-haul carriers. QF and EK are in the same position there (EK finance-leases most of its aircraft; I’m not sure why QF doesn’t view this as an option as opposed to cancelling orders).

    Mack: yup, I could/should have been clearer – not to suggest that VA offers a better service to the Middle East, but to suggest that operating flights to the Middle East to connect with Mid East carriers to Europe is a feasible model as opposed to just codesharing all the way.

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