Sims sees the need for Qantas speed

The ACCC's interim approval recognises the urgency in Qantas' bid for an Emirates partnership, and Qantas is ready to hit the ground running the moment a final authorisation is granted.

The Australian Competition and Consumer Commission’s decision to grant interim authorisation to the proposed alliance between Qantas and Emirates is a pretty clear signal of intent. It would be a remarkable about-face if the alliance wasn’t cleared for take-off when the commission delivers its final decision within the next couple of months.

The alliance has already gained draft approval from the ACCC on the basis that while there could be some modest detriment to competition flowing from the tie-up that was outweighed by the benefit to consumers from an improved product offering, access to more frequencies and destinations and an expanded frequent flyer program.

ACCC chairman Rod Sims has defended that draft decision strongly against criticisms from Qantas unions and independent Senator Nick Xenophon, who refuse to accept that Qantas International is losing money so badly that its existence is in question without radical change.

It is delusional to think that, in the face of those losses and the type and depth of competition Qantas is facing in the global industry, the airline could ever contemplate a strategy of flying its own metal to all the major international destinations. Alliances are the obvious response to the global aviation environment that has developed over the past decade.

The ACCC’s draft determination was issued on December 20 and Qantas and Emirates wasted no time in re-submitting an application for interim authorisation that they had withdrawn a month after seeking authorisation of their alliance – they reinstated the application on December 20.

That reflects their perceived need for speed. They want to be in a position to hit the ground running the moment a final authorisation is granted.

So far their co-operation has been confined to areas that don’t need ACCC approval, mainly the integration of their IT systems, discussion about their frequent flyer programs and preparation for the move of Qantas’ operational base from Singapore to Dubai.

They will now be able to negotiate and determine the pricing, capacity and schedules they will jointly offer on routes they fly via Dubai and begin offering fares and taking bookings for travel from April. The final decision is due before the end of March.

The ACCC said its interim authorisation would give the allies the opportunity to deliver the public benefits sooner, would cause no detriment to consumers or others, would not cause permanent changes in the relevant markets and was urgent because of the significant harm that had been incurred, and would continue to be incurred, by Qantas in particular in the period between the announcement of the alliance and final authorisation being determined.

Should the ACCC do the unexpected and decide not to authorise the proposed arrangements, Qantas and Emirates would compensate customers.

The tone of the ACCC’s commentary suggests that it accepts Qantas International is in a parlous state, although Sims has made the point (in response to the scepticism of the union and Xenophon about the extent of the losses within Qantas’ international business) that it wasn’t necessary for the commission to delve deeply into Qantas’ financials because it had already concluded there was a net public benefit from the arrangements.

The alliance with Emirates is a key component of Qantas’ five-year plan to stabilise its international business to the point where it can start investing in it again, albeit not a solution in itself. It is also a pre-requisite for a deployment of extra Qantas capacity – and more business-friendly scheduling – within Asia.

If it weren’t for the issues being experienced by the Boeing 787 Dreamliners (Qantas will take delivery of its first 787s, for its Jetstar brand, mid-year) Alan Joyce would be feeling pretty chirpy about the start of 2013, which shapes up as a very significant moment in the history of his group.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles