Virgin queries Qantas on Tasman
Australia's second-largest airline has told the regulator that the "claimed public benefits" of the Qantas-Emirates alliance did not extend to routes between Australia and New Zealand.
"While there may be public benefits that arise in relation to flights to Europe, it is not clear that there are material public benefits from the Qantas-Emirates alliance on the Tasman," it said in a submission. "If there is a competition issue on the Tasman, the commission should consider excluding it from the authorisation of the Qantas-Emirates alliance rather than imposing conditions."
Qantas and Emirates are rivals of both Virgin and Air New Zealand, which have had their own alliance on the trans-Tasman route since late 2010. The Australian Competition and Consumer Commission has given tentative approval to Qantas' extensive alliance with Emirates - which is mostly focused on routes to Europe via Dubai - but has raised concerns about its impact on the trans-Tasman route. The regulator has indicated that it will make the pair live up to their promise not to reduce overall capacity on routes between Australia and New Zealand.
The ACCC is concerned that Qantas and Emirates may have an incentive to reduce growth on the four trans-Tasman routes they have overlapping services in order to raise fares.
But Virgin is opposed to the regulator forcing the airlines to adhere to growth targets, especially on individual routes between Australia and New Zealand. "The costs and inflexibility of a capacity condition are greatest when applied on a route specific basis," it said.
"Any capacity condition should only apply as a floor against anti-competitive reductions."
Frequently Asked Questions about this Article…
The Qantas‑Emirates alliance is an extensive partnership mainly focused on routes to Europe via Dubai. Virgin Australia has told the competition regulator the alliance’s "claimed public benefits" don’t extend to routes between Australia and New Zealand, and it wants the regulator to stop the alliance applying to the trans‑Tasman unless there are clear benefits for the flying public.
The Australian Competition and Consumer Commission (ACCC) has given tentative approval to the alliance but has raised concerns about its impact on the trans‑Tasman route. The ACCC has said it will require Qantas and Emirates to live up to a promise not to reduce overall capacity between Australia and New Zealand and is assessing competition risks on overlapping routes.
The ACCC is specifically concerned about the four trans‑Tasman routes where Qantas and Emirates have overlapping services. The regulator worries the alliance could reduce growth on those routes, which might put upward pressure on fares.
The ACCC is concerned Qantas and Emirates may have an incentive to reduce growth on overlapping trans‑Tasman routes to raise fares. To address that risk, the regulator is focused on preventing reductions in overall capacity between Australia and New Zealand.
Virgin argues that if there is a competition issue on the trans‑Tasman, the ACCC should consider excluding those routes from the Qantas‑Emirates authorisation rather than imposing route‑specific growth or capacity conditions, which Virgin says are costly and inflexible.
Virgin says the costs and inflexibility of a capacity condition are greatest when applied on a route‑specific basis. It believes any capacity condition should act only as a floor to prevent anti‑competitive reductions, rather than forcing specific growth targets on individual routes.
Qantas and Emirates compete with both Virgin and Air New Zealand on trans‑Tasman services. Virgin and Air New Zealand have had their own alliance on the trans‑Tasman route since late 2010, which is part of the competitive landscape the ACCC is considering.
Investors should follow whether the ACCC excludes trans‑Tasman routes from the alliance authorization or imposes capacity conditions, and any final measures aimed at preventing reductions in overall capacity on Australia–New Zealand routes—because the regulator’s outcome will shape competitive dynamics on those routes.
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