A proposed joint venture agreement between Qantas Airways and China Eastern is facing opposition from the Australian Competition and Consumer Commission (ACCC). Qantas is continuing to defend the venture and is arguing that it will benefit competition rather than stifle it. Qantas International chief executive Gareth Evans argues that giving traffic rights to Chinese carriers will only increase competition in the Australian-China air market. Qantas and China Eastern already have a codeshare relationship. The new deal would allow them to further improve on the pricing and scheduling of flights. China Eastern believes that this new deal will allow them to increase weekly return flights from Sydney and Melbourne to Shanghai.
The ACCC has said that the alleged benefits from the Qantas-China Eastern deal are lacking evidence. Although the regulator agreed that there might be some benefits, they also argued that Qantas and China Eastern are being intentionally vague. “"Rather, the applicants have made general assertions about increases in frequencies without any supporting material," the ACCC said. The main issue cited by the ACCC is the advantage it would give Qantas Airways. Although there would be a limited benefit from increased cooperation between Qantas and China Eastern, the ACCC believes this deal would allow the venture to increase airfare for inbound flights, thereby hurting tourism.
Qantas has also cited the indirect flight market, which allows passengers to fly from Mainland China to Australia using alternative paths. They claimed that the venture would allow them to compete in the indirect flight market more effectively. But the ACCC countered this argument by pointing out that the indirect flight market only accounts for 12 to 15 per cent of all passengers between Sydney and Shanghai. Although this gives Cathay Pacific a 7 per cent market share on this route, it is marginal compared to the combined 74 per cent market share of Qantas and China Eastern on the same route. Furthermore, Qantas and China Eastern combined already have the largest total market share of flights between China and Australia. The ACCC said they would continue to review evidence and look for new data before they make their decision.
Author: Imran Valibhoy
Mar 24, 2015
Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.