The Australian Competition & Consumer Commission (ACCC) has denied authorisation for Qantas and Japan Airlines (JAL) to coordinate flights under the terms of a joint business agreement.
The ACCC found that the agreement would likely lead to reduced competition as international travel resumes, to the detriment of passengers travelling between Australia and Japan.
“The ACCC can only authorise an agreement between competitors if it is satisfied the public benefits would outweigh the harm to competition. The alliance did not pass this test,” ACCC chair Rod Sims said.
“Airlines have been severely impacted by the pandemic and this has been a very difficult period for them. But preserving competition between airlines is the key to the long-term recovery of the aviation and tourism sectors, once international travel restrictions are eased.”
In the year before the pandemic, Qantas and JAL together flew about 85 per cent of passengers travelling between Australia and Japan.
They were each other’s closest competitors on the largest route (Sydney-Tokyo) and the only airlines operating on the second-largest route (Melbourne-Tokyo).
The ACCC concluded that granting the authorisation would not only remove competition between Qantas and JAL, but would make it very difficult for other airlines to operate on routes between Australia and Japan.
Virgin Australia told the competition watchdog that it would be more difficult to enter the Australia-Japan route if it is required to compete with Qantas and JAL acting jointly rather than as individual competing airlines.
“We accepted that there was likely to be some short-term benefits from the alliance being able to jointly reinstate services more quickly when borders are reopened, which may initially stimulate tourism,” Sims said.
“However, the longer-term benefits of competition between airlines are cheaper flights and better services for consumers, which is vital to the recovery of tourism over the coming years.”
Following the ACCC’s draft decision in May, Qantas offered a commitment to commence a new service between Cairns and Tokyo once certain demand thresholds were reached.
“We think Qantas could commence a new Cairns service without the alliance, and the timing of any such service would be best determined by commercial factors in a competitive environment,” Sims said.
“Jetstar services on this route are currently planned to start again from February 2022, without the alliance.”
The ACCC has granted several exemptions from competition law during the COVID-19 pandemic.
These exemptions have typically been for short periods and involved targeted proposals for industry participants to come together to ensure supply of resources during the pandemic.
The competition watchdog found that the Qantas and JAL alliance would have allowed the airlines to stop competing on all aspects of price and service for three years.
Both Qantas and JAL expressed their disappointment at the ACCC’s decision.
“We’re obviously disappointed with this decision,” said Andrew David, CEO of Qantas’ domestic and international operations.
“A closer partnership between Qantas and Japan Airlines would have meant more routes, better flight connections and more benefits to frequent flyers. None of these benefits will be realised following the ACCC’s decision.
“We know the recovery of international travel is going to be slow and bumpy. It will take years for the whole travel and tourism industry to fully recover from COVID, so getting the policy settings right is going to be critical as key routes are rebuilt essentially from scratch. Getting that right will ultimately benefit the recovery of the Australian economy.
“This is particularly unfortunate for Queensland and Cairns, which would have benefited from a direct Qantas route to Tokyo that would have seen a lot of travellers wanting a premium experience.
“Without being able to coordinate with JAL and, in particular, to draw Japanese tourists into northern Queensland using JAL’s extensive marketing reach in Japan, the planned flights between Cairns and Tokyo are just not commercially viable for Qantas.
“We explained that dynamic to the ACCC at length, and we disagree with their assessment that the route is viable without the alliance.”
JAL executive officer and senior vice president of route marketing, international relations and alliances, Ross Leggett, said: “Japan Airlines is also truly disappointed with the ACCC’s decision to disapprove our proposed joint business.
“We especially believed that the joint business with Qantas would have accelerated the recovery of leisure and business traffic between Japan and Australia, with clear economic and social benefits to both countries in the extremely challenging environment precipitated by the COVID-19 pandemic.
“It is unfortunate that the opportunity to provide enhanced customer choice and extensive travel industry growth opportunities will not be realised.”
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