After approving multiple co-ordination agreements between various airlines in recent years, the ACCC has announced that it plans to deny authorisation for the proposed coordination agreement between Qantas and China Eastern.
The ACCC draft decision issued on 24 March 2015 asserts that the proposal would result in significant public detriment in respect of the route between Sydney and Shanghai. Specifically, the ACCC is of the view that:
- Qantas and China Eastern are the only major operators on this route. Combined, they currently operate 83% of the capacity on that direct route (each operates daily flights) and transport 74% of the passengers flown.
- Air China is not likely to offer a sufficient competitive constraint on this route despite the fact that it has a hub in Shanghai, currently operates three services a week
- on the route (17% of total capacity on the direct route) and could seek to take advantage of recently expanded capacity entitlements on the route;
- Indirect flights on this route do not offer a sufficient constraint to a direct flight. The ACCC’s analysis suggests that indirect flights take around 13 hours (cf 10.5 hours direct) and only 12-15% of all travel between Sydney and Shanghai is indirect, despite indirect flights sometimes being significantly cheaper.
- If authorised, the co-ordination agreement would enable Qantas and China Eastern to limit capacity and increase airfares on the Sydney-Shanghai route.
- The public benefits identified would not be sufficient to outweigh the detriment associated with the lessening of competition on the Sydney – Shanghai route.
The ACCC will receive submissions in relation to its draft decision up to 8 April 2015.