Australia’s competition regulator came out on Thursday, May 6, and said that it was proposing to block a code-sharing, pricing and scheduling deal between home carrier Qantas and Japan Airlines because it would likely mean higher fares and possibly worse service for passengers.

Qantas had claimed that the five-year agreement – proposed in late 2020 – would expedite the recovery from the COVID-19 pandemic and “better serve customers” by improving connections through the re-establishment of routes between 29 smaller cities in Australia, Japan and New Zealand.

On the contrary, the Australian Competition and Consumer Commission (ACCC) said that, in reality, cooperation would cause “severe harm to competition” and “eliminate any prospect of Qantas and Japan Airlines competing for passengers”.

Prior to the Covid-19 pandemic, Qantas and Japan Airlines had dominated and monopolized the market for flights between Australia’s two largest cities, Sydney and Melbourne, and Tokyo.

On the Sydney-Tokyo route, Air Nippon Airways (ANA) also offers flights. Virgin Australia had been set to fly between Brisbane and Tokyo when the pandemic hit, but it has since got rid of wide-body planes capable of the flights.

Virgin Australia had intended to launch flights from Brisbane to Tokyo in partnership with ANA just before the COVID-19 pandemic unfolded last year, which pushed the carrier into administration.

Unfair Motives

“This proposed coordination would appear to undermine competition significantly by reducing the prospect of a strong return to competition on the Melbourne–Tokyo and Sydney–Tokyo routes when international travel resumes,” ACCC Chair Rod Sims said, noting that this deal was between two number-one airlines of each country wanting to get together.

The aviation industry worldwide has seen profits plummet since the pandemic began, with many airlines surviving thanks only to government bailouts.

With worldwide vaccination programs being rolled out, international air travel is set for a slow and steady return. Airlines have tried to salvage back small profits, at times having to result in going against rules that were designed to protect passengers.

Australia’s regulator said it was open to granting certain exceptions to help in airlines’ recovery, but not at the expense of reducing competition in the foreseeable future.

Sims said, “the ACCC can only authorize these agreements if the public benefits from the coordination outweigh the harm to competition,” further stating that, “At this stage, we do not consider that Qantas and Japan Airlines’ proposal passes that test.”

The ACCC is seeking submissions from interested parties in response to the draft determination by May 27 and will make a final decision after considering those submissions.

Qantas is Disappointed

In regards to the ACCC’s announcement, Qantas said it was disappointed with the negative draft decision and it would respond to the ACCC’s concerns to help better convince the regulator of the deal’s benefits before the final decision.

“Not only would this partnership be good for our business, it would be good for consumers and help key parts of the tourism industry recover,” a Qantas spokesman said.

This is not the first time the ACCC has blocked agreements between Qantas and a foreign carrier. Back in 2015, a similar joint deal between Qantas and China Eastern Airlines was initially blocked due to concerns over fares on the Sydney-Shanghai route, but it was ultimately approved.

Japan Airlines said it would work with Qantas to determine the best course of action to gain ACCC approval for their proposed joint venture.

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Charlotte Seet

Fascinated by aircraft from a very young age, Charlotte’s dream was to work alongside the big birds one day. Pursuing her dream, she went on to achieve her diploma in Aviation Management and is currently working on her degree in Aviation Business in Administration with a minor in Air Traffic Management. When she’s not busy with school assignments, you can find her aircraft spotting for long hours at the airport. In Charlotte’s heart, the Queen of the Skies will always be her favorite aircraft.

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