Aviation

ACCC and Virgin voice concerns over Qantas-Cathay Pacific codeshare expansion

Australia’s competition watchdog and Virgin Australia have argued against the proposed codeshare expansion between Qantas and Cathay Pacific.

Under the proposed agreement, Qantas will add its code to an additional 19 one-way routes operated by Cathay/Cathay Dragon from Hong Kong to India, Japan, South Korea and Sri Lanka.

Qantas will also add its code to select Cathay services from Hong Kong to Sydney, Melbourne and Brisbane, where passengers are connecting to a Qantas Australian domestic service.

In return, Cathay, will add its code to an additional 32 one-way domestic Australian routes operated by Qantas.

The airline will also add its code to select Qantas services from Sydney, Melbourne and Brisbane to Hong Kong, where passengers are connecting to a Cathay/Cathay Dragon service to another destination in Asia.

The application lodged by Qantas on 8 January 2019 is seeking approval from the International Air Services Commission (IASC) for Cathay to the last part of the deal.

Qantas and Cathay do not require approval from the IASC to engage in the other three elements of the proposed expanded codeshare arrangement.

The Australian Competition and Consumer Commission (ACCC) noted in a letter to the IASC that its main competition concern around the proposed deal is that “the conduct may soften competition in the Australia-Hong Kong market by making it easier for Qantas and Cathay to coordinate their price and capacity decisions so as to raise price (or reduce service) for Australia-Hong Kong passengers who connect with a domestic Australia flight and/or a flight between Hong Kong and places in Asia”.

“For example, this may include delaying the deployment of additional capacity between Australia and Hong Kong,” the ACCC’s general manager of adjudication, David Jones, wrote.

“If the IASC decides to approve the variation of the determination, we consider it would be prudent for the IASC to closely monitor Qantas and Cathay’s behaviour on the route and Virgin Australia’s response.

“In doing so, the IASC may wish to monitor the carriers’ load factors, capacity flown, yield, and route profitability, as well as take-up of available spare capacity on the route, including by Virgin Australia.”

In a separate submission to the IASC, Virgin Australia said the material provided by Qantas to support its proposed codeshare agreement with Cathay was “insufficient to demonstrate that it would be of benefit to the public or promote the object of the [International Air Services Commission] Act”.

“Any marginal benefits to be delivered by the application would be completely offset by the corresponding detriment to competition, tourism and trade that would occur through permitting code share services on routes operated in parallel by the dominant carriers on the route,” wrote Lee-Anne Tomkins, head of government and international relations at Virgin Australia.

“Relevant precedent on the Papua New Guinea, Japan and South Africa routes provides clear support for this view. Accordingly, there are insufficient grounds to justify the variation of Determination [2015] IASC 115.”

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