Qantas, China Eastern Propose 'Capacity Conditions'

29th Apr 2015

Australian and Chinese carriers Qantas and China Eastern have proposed a "capacity condition" as a part of their solution to the Australian Competition Commission in order to get the ACCC's approval for their alliance.

Earlier in March, the ACCC said it would block the proposed alliance for fear that it would grant the two companies monopoly on the Sydney-Shanghai route and the free reign to limit capacity growth and increase ticket prices as they please.

The two carriers responded to the ACCC draft by saying that the Commission failed to acknowledge the level of competition other airlines provide between Australia and China.

In addition, both Qantas and China Eastern said the competition regulator failed to see the public benefits this partnership will bring. The regulator has also overlooked the benefits of an Australian airline having a strong presence in China.

Qantas and China Eastern have also pointed out that their alliance will not limit capacity growth, but will in fact accelerate it.

The ACCC, in its March draft, has also reasoned that the outcome of this alliance will be a "significant public detriment".

Currently, Qantas and China Eastern hold 83 percent of all seats on this route. The only other carrier flying between China and Australia is Air China. However, ACCC does not believe it could be a strong enough rival.

Qantas flies every day between Sydney and Shanghai with Airbus A330 planes. On the other side, China Eastern operates this route as well as Sydney-Nanjing-Beijing and Melbourne-Shanghai.

Qantas and China Eastern Offer "Capacity Conditions"

Although they have denied the majority of arguments made by the ACCC, Qantas and China Eastern have decided to offer a:

"Capacity condition which specifically addresses the Commission's concerns and which ensures the applicants will maintain and grow capacity."

In their submission, the carriers said:

"The Draft Capacity Condition, coupled with the commercial terms of the Joint Coordination Agreement and the realities of global aviation, mean that the Applicants will neither have the ability or incentive to reduce capacity or limit growth."

Full details of the submission were not revealed to the public for confidence reasons.