International airlines are starting to prepare for the opening of international borders, but a proposal by Qantas and Japan Airlines to co-ordinate flights between Australia and Japan has been knocked on the head by the competition watchdog.
The Australian Competition and Consumer Commission (ACCC) explained that the proposal by the two airlines would have likely led to reduced competition when international flights resumed and was not in the public interest.
ACCC chair Rod Sims said the proposal, which would have allowed the two airlines to stop competing on all aspects of price and service for three years, would have been 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,” Mr Sims said. “The alliance did not pass this test.”
“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 Japan Airlines together flew about 85 per cent of passengers travelling between Australia and Japan.
They were the 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 Japan Airlines, it would make it very difficult for other airlines to operate on routes between Australia and Japan.
Virgin Australia told the ACCC that it would be more difficult to enter the Australia-Japan route if it was required to compete with Qantas and Japan Airlines 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,” Mr 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.”
Qantas domestic and international chief executive Andrew David said the decision would scupper plans for the airline to create a Cairns-Tokyo route as well as many other benefits.
“A closer partnership between Qantas and Japan Airlines would have meant more routes, better flight connections and more benefits to frequent flyers,” Mr David said. “None of these benefits will be realised following the ACCC’s decision.
“This is particularly unfortunate for Queensland and Cairns, which would have benefitted from a direct Qantas route to Tokyo that would have seen many 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.”
The ACCC explained that the alliance was unnecessary for this new route to be created.
“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,” Mr Sims said.
“Jetstar services on this route are currently planned to start again from February 2022, without the alliance.”
Earlier this year, Japan was one of the countries listed by Prime Minister Scott Morrison with the potential to operate a travel bubble.
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