Qantas axes China Eastern partnership in another concession to ACCC

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Qantas has scrapped its plan to renew its long-running partnership with China Eastern less than a week before its flights to Shanghai resume – its second concession to the competition watchdog in a month.

The two airline businesses began coordinating prices, schedules and marketing on the Shanghai route in 2015, in an extension of their code share agreement. But the Australian Competition and Consumer Commission (ACCC) recently flagged it was likely to deny any application from Qantas to renew the partnership on the basis it may breach competition laws.

Qantas has withdrawn its application to continue partnering with China Eastern, in its second competition-based concession since Vanessa Hudson took over. Credit: Bloomberg

When the ACCC released its draft determination in September, commissioner Anna Brakey said the watchdog was concerned the pairing would allow Qantas and China Eastern to increase prices by limiting or delaying the introduction of additional capacity on the Sydney-Shanghai route despite growing demand. They are currently the only two carriers that fly the route.

Qantas stopped servicing Sydney-Shanghai during COVID-19 but is due to resume daily flights on Sunday. A Qantas spokesperson said on Tuesday that Qantas and China Eastern would no longer seek authorisation to coordinate.

“Qantas and China Eastern will honour all existing bookings, including the frequent flyer benefits and lounge access customers enjoyed during the joint business,” they added.

The code share arrangement between the two carriers will remain on all other routes between Australia and China that both airlines do not fly.

It’s the second time Qantas has rescinded a plan in light of ACCC opposition since its newly minted boss Vanessa Hudson took over in September. The axed partnership follows last week’s announcement from Qantas that it would terminate its planned $614 million takeover of Alliance Airlines following similar opposition from the ACCC.

“Continuing to seek competition clearance for the transaction would require the company to apply significant additional resources to extensive and complex contested court proceedings,” the ACCC said.

Qantas has owned a 20 per cent stake in the Brisbane-based operation since 2019 and moved in April 2022 to purchase the remaining 80 per cent. Under the terms of the proposed deal, Alliance shareholders would have received Qantas shares worth $4.75 for each Alliance share they hold.

The regulator first opposed the Alliance transaction in April after a lengthy investigation determined the level of competition on routes in regional and remote areas of Australia needed to be strengthened. The call followed four delays by the commission, which first received the proposed acquisition application in April 2022.

RBC analyst Owen Birrell wrote to clients in September, following the ACCC’s initial opposition to the China Eastern partnership, arguing that there was a risk other Qantas partnerships may be denied in the future.

“We note the rising risk that a similar argument could be made by the ACCC in reference to [Qantas’] other ‘partnership-style’ arrangements as they come due, namely with Emirates (due 2028) and American Airlines (due 2026),” Birrell said on Friday.

The Senate select committee into bilateral air rights recommended that the Australian government consult the ACCC on all future bilateral air rights applications, as part of a broader cost benefit analysis following the Qatar Airways saga.

ACCC chair Gina Cass-Gotlieb told the inquiry the watchdog was not consulted on the decision to reject Qatar Airways from doubling its flights to Australia in July.

The report, which was released earlier this month following the inquiry, also recommended the decision to reject Qatar Airways be reviewed following more than 140 submissions from the aviation and tourism industry. Qantas is the only known airline to have opposed the application.

Qantas’ share price dropped by less than one per cent to $4.76 per cent on Tuesday.

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