Qantas (QF, Sydney Kingsford Smith) could be denied Australian regulatory approval for its planned partnership with China Eastern Airlines (MU, Shanghai Hongqiao) over concerns the tie-up could harm competition on the Sydney Kingsford Smith-Shanghai Pudong route. The venture was announced in November last year as part of a renewed five-year agreement which would have given both carriers increased access to each other's markets.
However, in its draft decision, the Australian Competition and Consumer Commission (ACCC) says it may not approve the deal given that Qantas has chosen to partner the only other operator on the route, which accounts for 24% of all direct flights between China and Australia.
“Qantas and China Eastern together account for more than 80 per cent of capacity (seats flown) on direct services on the Sydney–Shanghai route," ACCC Chairman Rod Sims said. "They are the two major airlines on the route and the only airlines offering daily flights, and so the major competitive constraint on each other. Competition between them will be greatly reduced under the proposed Agreement.”
The body went on to note that while the partnership will result in "some limited public benefits" - including Qantas passengers and cargo benefiting from the carrier's planned relocation to China Eastern’s terminal at Shanghai - the overall impact of these advantages would not offset "the significant public detriment likely to result" from the two carriers' partnering on the route.
As it currently stands, the ACCC is now seeking submissions from interested parties in relation to its draft determination, before making a final decision.
The two carriers have an existing history in that they are both shareholders in the stalled Jetstar Hong Kong (Hong Kong International) venture.
