Government Gives Thumbs Up to Qantas-China Eastern Alliance

13th Apr 2015

The partnership between Qantas Airways and China Eastern Airlines has received an important 'green light' from the Australian government.

Last week, the ACCC (Australian Competition and Consumer Commission) revealed that it will block the partnership that the two carriers have developed on the Sydney-Shanghai route. The reason stated was the likelihood of giving the two carriers over 80% capacity share and thus an effective monopoly over this route.

ACCC's Draft 'too Narrowly Focused'

However, the Department of Infrastructure and Regional Development is of a different opinion. They say that the ACCC's draft was "too narrowly focused" on the Sydney-Shanghai route and does not take the entire Australia-China market into account.

The Department has sent a submission to the ACCC in which it said that it "sees no reason to deny" the Qantas Airways - China Eastern Alliance. As a reason, the Department indicated that the deal could offer substantial benefits for the travelers, as well as for the Australian economy. According to the Department, these are "exactly the benefits" that the Australian government's aviation policy should back.

The department said:

"The commercial reality is that any given market a hub airline will have significant market share on routes to and from that hub. This should not in itself prevent the formation of immunized alliances with other carriers when consumer benefits can be showed to outweigh competitive impacts."

"Regulator had Overstated Impacts"

According to the department, the ACCC regulator had "overstated impacts" that might result from the suggested arrangement on the Sydney-Shanghai route.

The department also commented that there was "substantial scope" for other airlines to respond to the Qantas Airways - China Eastern Airlines partnership, saying:

"These one-stop services are frequent, comparable to direct services in terms of product and price (or even cheaper in some cases) and... the difference in travel time can be as little as one hour and 40 minutes."

The two carriers are looking for a 5-year approval of their proposed partnership with which they can coordinate flight schedules and fares. Currently, the Sydney-Shanghai route is the only one on which the two company's overlap when it comes to flights.

The department has also rejected the notion that the existing rights to operate services under an agreement between Australia and China would impede competition on the Sydney-Shanghai route. It specified that the Australian government would review the air-service agreement in order to make sure there were enough flights in case the Chinese carrier reaches its capacity limit.