Should the ACCC have rejected the Qantas-Emirates Joint Venture?

In 2013, Qantas Airways entered a joint venture (JV) agreement with Emirates Airline covering routes between Australia and Asia, Europe (including the United Kingdom(UK)), the Middle East, North Africa, and to New Zealand. JVs go beyond a typical codeshare and ticketing agreement and allow airlines to integrate their services at an operational and strategic level including coordinating routes schedules, capacity, pricing and even sharing revenues and costs on the overlapping routes.

The extensiveness of JVs, which effectively merge a range of operations and might otherwise be considered a cartel, often requires the approval of competition authorities. In Australia, JVs require the approval of the Australian Consumer and Competition Commission (ACCC), while in the United States, for example, from the US Department of Transport (USDOT). In the case of Qantas‘s JV with American Airlines, approval was required from both ACCC and the USDOT.

Each country may apply a different standing when approving or rejecting JV agreements and may independently seek concessions in return for approval or apply conditionalities. In the case of the ACCC, they must consider if the JV is in likely to result in a public benefit. On the one hand, it may increase the concentration in the market and result in higher prices, but it may also allow airlines to offer customers more efficient schedules and a greater number of connecting options on a single ticket. Furthermore, the global architecture of network carriers and large international connecting hubs, means that airlines require partnerships to services a larger range of destinations and typical codeshare agreements has limits. JVs allow airlines to access greater capacity and at better terms, increasing efficiency and scope, without requiring greater scale.

JVs can also increase market concentration and generate incentives to reduce capacity, particularly in less competitive markets. Thus, the use of concessions and conditionalities are important tools to ensure that JVs generate a public benefit. Importantly, it is for the airlines to show regulators that the proposed JVs will generate public benefits, and for regulators to hold airlines to account to ensure that JVs generate the promised benefits.

The ACCC generally provide approval for airline JVs for a fixed period of time (five years), requiring the airlines to reapply for approval. In doing so, they must show that the JV provided the public benefit that was promised and that the continuation of the partnership will continue to provide a public benefit. The ACCC is under no obligation to reapprove of the partnership and will assess the application in the same manner as the original application. The Qantas–Emirates JV was reapproved for an additional five years in 2018, and then again in August 2023 for an additional give years. Yet a month later, the ACCC published a draft determination giving notice that they intended to deny an extension of the JV between Qantas and China Eastern Airlines. Qantas and China Eastern have since withdrawn the application and thus will not challenge or contest the ACCC’s draft determination. As we will consider, the ACCC’s decision was somewhat surprising and even perplexing.

While the ACCC conducts inquiries independently of each other (i.e., the Qantas–Emirates application was dealt with independently of the Qantas–China Eastern application), each are assessed within the context of the same law and – conceptually – the same standard of public benefit is applied. The two JVs are, to some extent, not comparable, given the significant difference in scale, scope, and markets. The Qantas–Emirates JV is significantly larger than the Qantas–China Eastern JV in terms of the scope (as Qantas–China Eastern covers the markets between Australia and China compared to Qantas–Emirates‘s expansive JV) and the capacity that both airlines contribute, but moreover they also face different competitive landscapes on the routes that the JV covers. For the purposes of this analysis, China refers to Mainland China, thus excluding Hong Kong.

This analysis will consider the two JVs in detail, and in the analysis arguing that the ACCC erred on both decisions, that the extension of Qantas–Emirates JV should not have been approved, at least not without significant conditions, exclusions or concessions, while the Qantas–China Eastern JV should have been approved, potentially retaining the existing conditions that the ACCC had previously applied. First we will consider the Qantas–China Eastern JV and the context of the Australia-China market, and then consider the Qantas-Emirates JV and the context of two distinct markets, Australia-New Zealand, and all others. A challenge during this analysis is that both JVs were considered for renewal in 2023 as international air travel was recovering from the COVID-19 pandemic. Data for 2020 and 2021 are not reliable baselines for comparison as minimal international air travel took place during this time. Data in 2022 and even 2023 shows that recovery is not yet complete. While some markets have fully recovered, others like Australia-China are well below pre-pandemic levels. As data from our Capacity Tracker shows, in the year between October 2022 and September 2023, capacity between Australia and China was still down 69% compared to the pre-pandemic baseline (October 2018 and September 2019). While the recovery has accelerated (only down 33% over the last quarter), it is still somewhat difficult to analyse. In many cases, we can only consider the market trends pre-pandemic, and the ACCC may have been well advised to delay both of these decisions until more reliable data was available.

Qantas and China Eastern Airlines

Qantas and China Eastern’s JV was initially authorised by the ACCC in August 2015 for a period of five years (until October 2020). The JV was authorised with conditions, requiring Qantas and China Eastern to maintain their baseline capacity on their combined routes between China Eastern’s Shanghai (PVG) hub and Australia, and specifically to maintain their combined capacity on the Sydney (SYD)–PVG route. Furthermore, ostensibly as a condition for renewal at the end of the authorised period, they would be required to grow their combined capacity by a compound annual growth rate of 4%. Notably, the scope of the JV was relatively narrow, only covering routes between Australia and China (excluding Hong Kong). The conditionalities applied by the ACCC are not unusual, especially in the context of the Australia-China Bilateral Air Services Agreement (BASA) that existed at that time that significantly limited capacity between the countries. At the time of the approval, Qantas and China Eastern jointly operated between 23 and 37 weekly flights between Australia and China, connecting three destinations in China with three in Australia (see Table 1).

Table 1: Qantas and China Eastern flights between Australia and China, 2015 and 2019

The JV was due for renewal in October 2020, however due to the COVID-19 pandemic, an interim one year extension was granted in March 2022 and subsequently extended again to March 2023, and again to March 2024. Finally, the draft determination indicating the ACCC’s intention to reject the renewal application was published in September 2023. Since then, Qantas and China Eastern have since withdrawn the application, and will not challenge or contest the draft determination, the existing JV will come to an end in March 2024.

The Australia-China market

The Australia-China market has grown considerably in the last decade and a half. ABS data showing that Australian residents returning from China and short-term Chinese nationals arriving in Australia (combined) have increased from 627,510 in 2008 to a peak of 2,046,400 in 2019, an increase of 326% (Figure 1), accounting for an increase from 5% of all short-term arrivals into Australia in 2009 to 10% by 2019, a doubling in a little more than a decade.

At the same time, the increase in demand between Australia and China was more than matched by an increase in airline seat capacity between the two countries. BITRE data shows an increase in annual seat capacity from 456,892 in 2008 to 2,173,156 in 2019 (Figure 1), and increase of 476%. Notably, passenger demand exceeded seat capacity in 2008, while seat capacity exceeded passenger demand in 2019, highlighting that seat capacity increased more rapidly than demand. This highlights that many Australia-China passengers connect via intermediate points (e.g., Hong Kong (HKG) or Singapore (SIN)) and that passengers on direct flights between Australia and China may also be connecting onwards to third countries.

The increase in seat capacity has been aided by the liberalisation of Australia-China BASA in 2016, culminating in the adoption of an open skies agreement that came into effect in early 2017. Notably, the liberalisation of the market occurred after the 2015 approval of the JV. Ostensibly, the JV was approved in a significantly less competitive market than is currently the case. The barriers to entry that limited new entrants or additional capacity between China and Australia, or on overlapping routes, are significantly less now than in 2015 or may not exist in any meaningful sense for an established competitor.

Between 2015 and 2019, the number of airlines (excluding Qantas and China Eastern) flying between Australia and China grew from 3 to 8, operating from between 52 and 59 weekly flights in 2015, increasing to between 93 and 110 weekly flights in 2019. These carriers connected 5 points in China and 4 in Australia in 2015, increasing to 13 in China and 7 in Australia by 2019 (Table 2). This corroborates the increase in seat capacity observed in Figure 1.

Table 2: Flights between Australia and China operated by airlines other than Qantas and China Eastern, 2015 and 2019 Airlines: Air China, Beijing Capital Airlines, China Southern Airlines, Donghai Airlines, Hainan Airlines, Sichuan Airlines, Tianjin Airlines, Xiamen Airlines.

Qantas and China Eastern’s response

Since the approval of the JV, Qantas and China Eastern have also increased the number of flights they operate between Australia and China, resulting in an increase in seat capacity. As Table 1 shows, weekly flights increased from between 23 and 37 in 2015 to between 50 and 61 in 2019 (including Jetstar Airways who are included in the JV), increasing the number of connection options from 3 to 8 points in China. Seat capacity increased from 373,891 inbound passengers in 2015 to 683,957 in 2019, an increase of 83%, or a compound annual growth rate of 16% (or 13% using 2014 as the baseline) (Figure 2). Remarkably, Qantas and China Eastern maintained their market share between 2015 and 2019, despite declining in the years prior (Figure 3). One might commend the ACCC for the conditions they set that ensured that Qantas and China Eastern continued to increase capacity while the market was undergoing significant growth. Some may argue that the advent of open skies led to a saturation in the market as evidenced by seat capacity growing more rapidly than passenger demand that could have led Qantas to reduce capacity in the face of lower cost competition.

It should be noted that the capacity increases by the JV were driven almost entirely by China Eastern. This is not unexpected though since in a revenue neutral JV, all else being held constant, providing additional capacity through the lower cost operator (i.e., China Eastern) would be preferable unless the higher cost operator (i.e., Qantas) would generate a sufficiently larger yield premium to overcome the higher cost. Post 2015, Qantas added flights to Beijing (PEK) in addition to existing PVG flight, taking their weekly flights from between 6 and 7 to 12, while China Eastern added between 17 and 19 weekly flights, adding 4 additional destinations in China (Table 1).

In addition to the aggregate conditions, the ACCC placed specific conditions on the SYD–PVG route. This targeted condition was included given the monopoly that Qantas and China Eastern would enjoy on the route, the relative importance of the route, and that the route accounted for 18% of total capacity between China and Australia. Considering only routes from PVG (Figure 4) and SYD–PVG (Figure 5), the compound annual growth rate was 10% and 4%, respectively (or 8% and 4% using 2014 as the baseline). Thus, on face value, Qantas and China Eastern met the conditions that the ACCC applied to the original approval despite the significant market changes, including the liberalisation of the BASA framework that cumulated in open skies and was followed by a significant increase in capacity.

It may appear somewhat obtuse then that the ACCC rejected Qantas and China Eastern’s application given that they had satisfied the conditionalities that the ACCC had applied in their original decision, however we will return to this discussion after considering the Qantas–Emirates JV in some detail.

Qantas and Emirates

It is well established that Emirates is fundamentally a transit airline connecting most passengers they carry through their Dubai (DXB) hub. Few of the passengers that they carry to/from Australia are starting or ending their journeys in DXB, but rather connecting to or from an array of cities in Europe, Africa, the Middle East, etc. Thus, unlike the Qantas–China Eastern JV, it is not straightforward for competition authorities to analyse. It may be somewhat impossible to consider the impact on every market and how might one weigh up the relative importance and effect size in different markets. For example, the JV may have a very large impact in reducing competition between Australia and Egypt, and a small impact in increasing competition between Australia and Italy. Should the negative impact between Australia and Egypt be tolerated to gain the positive impact between Australia and Italy. This is certainly more complex than the Qantas–China Eastern JV that covered a single market.

As previously outlined, the Qantas–Emirates JV was originally authorised by the ACCC in March 2013 with conditional authorisation for a period of five years. Notably, the conditions imposed by the ACCC applied only to routes between Australia and New Zealand, requiring Qantas and Emirates to maintain the combined capacity on four overlapping trans-Tasman routes. There were no other conditions, for example no requirements for Emirates to maintain capacity to DXB, or for Qantas to maintain capacity to Europe (ostensibly where much of the westbound JV traffic would be headed).

The JV was extended in March 2018 for a further five years to March 2023 with a loosening of the conditions with the ACCC indicating that they may impose specific capacity requirements on only a single trans-Tasman route. However, this was no longer a condition with a hard capacity constraint as was previously applied, and was reduced from four routes to just one route. In March 2023, and interim extension was granted, with a full five-year extension granted in August 2023, with unchanged conditions. This begs the question, how is it the Qantas–Emirates JV was approved with weaker conditionalities over time, yet the Qantas–China Eastern JV was originally approved with strong conditions and then rejected for renewal even those conditions were met? We will return to this after considering the Qantas–Emirates JV in more detail, firstly considering westbound routes, and secondly by considering the Australia-New Zealand market.

The Qantas Emirates JV in action

In order to analyse the market impact, it is important to consider the impact that the Qantas–Emirates JV has had on their respective operations, particularly with to respect to overlapping routes. Prior to the JV, Qantas operated three daily flights to Europe, including two daily London Heathrow (LHR) flights, one each from MEL and SYD, both operating via SIN, and daily flights to Frankfurt (FRA) from SYD, also operating via SIN. Furthermore, Qantas used its fifth freedom privileges to operate a scissor hub in SIN, allowing passengers to connect through SIN on these of other Qantas (and Jetstar) flights to/from Australia, allowing passengers from Adelaide (ADL), Brisbane (BNE), Perth (PER), etc to connect through to either FRA or LHR. Conceivably, a passenger could fly MEL–SIN on one Qantas flight, connecting to SIN–FRA on another, or BNE–SIN on one, connecting to SIN–LHR on another. While we were critical of the significant of fifth freedom flights in a previous analysis, this is a significantly utilisation of the privilege, as opposed to airlines using the rights simply to capacity to third country destinations.

At the same time, Emirates had an extensive Australian network, operating 10 daily flights, including 3x daily flights to SYD (1x via Bangkok (BKK), 2x non-stop both with onwards service to Auckland (AKL) and Christchurch (CHC)), 3x daily flights to MEL (1x via Kuala Lumpur (KUL), 1x via SIN, 1x non-stop with onwards service to AKL), 2x daily flights to BNE (1x via SIN, 1x non-stop with onwards service to AKL), and 2x daily non-stop flights to PER (Table 3).

Upon entering the JV, Qantas shifted the routing of their LHR flights from SIN to DXB and eliminated flights to FRA. While they lost their scissor hub, they instead gained access to a much wider range of connecting options via DXB, and with greater control over scheduling and capacity. Prior to the JV, Qantas supported their European operating with a code share with British Airways and to a lesser extent Iberia which gave them access to 29 destinations in Europe, including 5 domestic destinations in the UK. A small number of additional destinations were also available through other Asian hubs. By 2014, they accessed 28 destinations in Europe via DXB, while maintaining 9 destinations through LHR (via codeshare) that were not available via DXB. While this may appear a small gain, they also gained access to an additional 14 destinations in other regions via DXB. Furthermore, a reduction in backtracking from LHR reduced total trip times, and higher frequency operations between Australia and DXB increased efficiencies and redundancies. But more importantly, it allowed Qantas and Emirates to coordinate schedules and even pricing (yes, they could collude on pricing), and allowed them to pool revenues and costs.

To Dubai and beyond

Since the implementation of the JV in 2013, Qantas’s European capacity declined from 516,946 inbound seats 2012 to 259,250 in 2019, a sizeable decline of 50% (Figure 6). Not only did this result from the cancellation of the daily SYD–SIN–FRA flight, but also the reduction in capacity from shifting the daily MEL–DXB–LHR flight (flown on the A380) to MEL–PER–LHR flown on a B787-9. Notably, capacity had been declining already before the implementation of the JV. Conversely, Emirates’s capacity to/from Australia increased from 1,352,679 inbound seats in 2012 to 1,771,875 in 2019, an increase of 31%. Qantas and Emirates‘s combined capacity increased from 1,869,625 to 2,031,125 inbound seats between 2012 and 2019, an increase of 9%. Notably, both Emirates and the combined JV capacity peaked in 2018 and declined significantly in 2019, before the COVID-19 pandemic.

As seen from the Qantas–China Eastern example, capacity to/from particular cities is also of interest to regulators. While Qantas’s capacity is heavily concentrated on MEL and SYD, the JV provides direct connections from BNE and PER, and more recently ADL (although ADL has not returned post-pandemic). The distribution of this capacity between Australian cities is shown in Figures 7-12. Fascinatingly, post-JV capacity growth favoured BNE (61% increase between 2012 and 2019) and the new services to ADL, whereas MEL and SYD saw capacity decline between 2012 and 2019 (4% and 7%, respectively). PER has also experienced a decline of 16% in the same time period, but this should be viewed in the context of Qantas‘s European flights now routing through PER (e.g., MEL–PER–LHR and SYD–PER–FCO) that are not included in these capacity figures (rather included in MEL and SYD).

Trans-Tasman

The Australia-New Zealand market is undoubtedly one of the of the most, if not the most important, international travel market to Australia, accounting for 14% of international short term visitors and returning residents in 2019 (ABS). This is the largest share of any country. It is notably different from many other international markets since the flights are not long-haul flights. The relatively short haul nature of the routes means the route economics are significantly different, with operators able to operate higher frequency narrow-body flights and connect a larger number of destination, including secondary destinations.

At present, the market is dominated by Qantas group (including Jetstar) and Air New Zealand, accounting for 76% of total passengers in 2019. Virgin carried 18% of total passengers in 2019, but have not returned much of their pre-pandemic capacity, only operating routes to Queenstown (ZQN) with no indication that they will return to trunk routes to AKL, CHC, or WLG anytime soon, resulting in an even more concentrated market. There are several foreign airlines flying fifth freedom routes, including LATAM, China Airlines, and Emirates, although these have varied significantly over time.

Emirates’s fifth freedom routes to New Zealand currently consists of a single daily SYD–CHC service flown on an A380. However, as recently as 2017, Emirates operated 4x daily fifth freedom services between Australia and New Zealand, with daily BNE–AKL, MEL–AKL and SYD–AKL flights in addition to the SYD–CHC service. All four of these services predate the JV although capacity has increased over time as Emirates increased the utilisation of the A380 on these routes. These routes served multiple purposes for Emirates, including increasing aircraft utilisation given long turnarounds in Australia in order to time flights for departure and arrivals banks in DXB. See our previous discussion on fifth freedom services for more details.

Total inbound JV seat capacity between Australia and New Zealand grew from 1.8 million in 2012 to 2.0 million in 2019, an increase of 9%, however there has been a noticeable decline in capacity in 2018 and 2019 (12% decline between 2017 and 2019, resulting in a loss of 264,857 inbound seats) (Figure 13). Notably, this decline was due to Emirates’s reduction from 4x to 1x daily flights with only SYD–CHC remaining. Qantas significantly increased capacity in 2018 and 2019 in an attempt to make up the shortfall, but nevertheless JV-wide capacity fell significantly. Notably, while JV capacity fell in 2018 and 2019, capacity by other airlines increased during this time. Other airline capacity increased 32% between 2012 and 2019, and 5% between 2017 and 2019 (Figure 14). The net result was a fairly substantial loss of market share by the JV partners in 2018 and 2019 (Figure 15).

As competition authorities are also concerned with the competitive impact on specific cities and routes, we can consider this from both ends, specifically what are the competitive impact on overlapping routes to cities in New Zealand (e.g. AKL, CHC, ZQN, and WLG) and in Australia (e.g. BNE, MEL, and SYD). Firstly, we consider the impact to cities in New Zealand. Figure 16 shows the annual inbound seat capacity provided by the JV (including Emirates, Jetstar, and Qantas) decomposed into New Zealand cities.

Capacity to AKL increased in the years before the implementation of the JV in 2013 and continued to increase at a significantly slower pace after 2013 (Figure 17). Qantas’s capacity remained relatively unchanged, while Emirates‘s capacity increased due to the increase in gauge (replacing B777-300ERs with A380s) and the expansion of Jetstar services. Notably, capacity declined significantly in 2018 and 2019 as Emirates withdrew from their fifth freedom services, while capacity replacement from Qantas was insufficient to make up for the shortfall. The net effect is that JV capacity to/from declined by 15% between 2012 and 2019, and 21% between 2017 and 2019 alone (highlighting that the JV coincided with capacity increases until 2017).

Capacity to CHC declined in the years before the implementation of the JV in 2013 and stabilised after the implementation of the JV (Figure 18). Qantas’s capacity began to increase in 2016, followed by Emirates capacity increase due to an increase in gauge. Unlike AKL, Emirates did not withdraw capacity in 2018 and 2019. This is likely due to the specific focus that the ACCC had placed on the SYD–CHC route (more about this later). The net effect is that CHC JV capacity increased by 42% between 2012 and 2019, although declined marginally (only 2%) between 2017 and 2019.

Capacity to ZQN has increased remarkably before and after the implementation of the JV (Figure 19). Notably, Emirates have never flown the route (likely due to ZQN‘s operational limitations), which is flown by both Qantas and Jetstar. Capacity increased by 218% between 2012 and 2019, albeit from a very low base, and increased by 16% between 2017 and 2019. Capacity to WLG was also increasing before the implementation of the JV and has continued since (Figure 20). Like ZQN, Emirates do not fly the route, which is flown by both Qantas and Jetstar. Capacity increased by 25% between 2012 and 2019 and decreased marginally (by 2%) between 2017 and 2019.

Returning to CHC, the ACCC placed particular attention on this route during the initial approval and first renewal of the JV partnership. Figure 21 shows the annual inbound JV capacity by airline on the SYD–CHC route. Prior to the implementation of the JV, it is noticeable how Qantas and Jetstar withdrew capacity when Emirates increased capacity in 2009. Capacity remained stable in the immediate aftermath; however this was likely due to the conditions that ACCC had placed on the JV with respect to this route. Furthermore, capacity increased in 2017 as Emirates increased the gauge of the SYD–CHC flight to an A380, and unlike other routes capacity did not decline in 2018 and 2019 as this was the only Emirates fifth freedom route to survive Emirates’s trans-Tasman cuts.

Now considering capacity to/from Australian cities, Figure 22 shows the annual inbound seat capacity by the JV by city. Capacity to BNE and Gold Coast (OOL) (combined for the purpose of this analysis) was flat in the years before the implementation of the JV and increased significantly after the implementation of the JV in 2013 (Figure 23). However, BNE suffered significantly with the withdrawal of the Emirates fifth freedom capacity in 2018 and 2019 as the replacement capacity from Qantas was not sufficient to make up the difference. The net result was that capacity increased by 9% between 2012 and 2019, but declined by 27% between 2007 and 2019.

Capacity to MEL increased rapidly in the years leading up to 2013, driven by increases from all airlines but particularly Qantas (Figure 24). However, growth slowed significantly after the implantation of the JV in 2013. MEL also suffered significantly from the Emirates fifth freedom withdrawal, although somewhat less than BNE as Qantas increased capacity significantly. The net effect was an 18% increase in capacity between 2012 and 2019, despite a decline of 12% between 2017 and 2019.

Capacity to SYD remained flat in the years leading up to 2013, and remained relatively flat in the years after the JV (Figure 25). Capacity increased slightly in 2016 and remained relatively unchanged even after the Emirates fifth freedom withdrawal as Qantas capacity replaced Emirates’s capacity withdrawal and SYD‘s shielding from capacity declines due to the protection of the SYD–CHC route. The net effect was an 6% increase in capacity between 2012 and 2019, despite a decline of 3% between 2017 and 2019.

Putting it all together

In September 2023, the ACCC signalled their intension to reject the extension of the Qantas–China Eastern JV, despite Qantas and China Eastern meeting, and exceeding the capacity conditionalities on the JV’s total seat capacity between Australia and China, and specifically on the SYD–PVG route. However, a month earlier, the ACCC approved an extension to the Qantas–Emirates JV with no capacity conditionalities, despite significant declines in the JV’s capacity between Australia and New Zealand, Australia’s most significant international market.

The impact of the COVID-19 pandemic has made the analysis of market competition somewhat difficult given the near catastrophic loss of market demand and capacity in 2020 and 2021, and the slow return of capacity. This has been made even more difficult by China’s particularly slow opening up post-pandemic. Indeed, total market capacity in 2023 is still well below pre-pandemic capacity. Our capacity tracker shows that in the year to September 2023, international capacity to/from Australia was still down 22% (compared to the comparable period pre-pandemic), and while capacity is returning rapidly, total capacity over the last month and quarter was still down 7% and 12%, respectively. This, this limits our analysis to only considering the impact of JV prior to the pandemic. Equally it limits the ability of the ACCC to effectively assess the market impact of JVs.

As our analysis has shown, the competitive impact of the Qantas–Emirates JV on westbound services (i.e., to DXB or LHR) has been limited. The JV has maintained, and even increased capacity, albeit it with Qantas reducing capacity, but Emirates compensating with capacity increases. However, there are some concerns regarding capacity to/from MEL particularly, especially since Qantas have now signalled that the MEL–PER–LHR flight will no longer originate in MEL, at least for the time being. However, this announcement has been subsequent to the JV renewal in August 2023. Furthermore, there are some concerns regarding declining capacity by Emirates to PER, but this should be contextualised with Qantas routing European bound flights from MEL and SYD via PER. Given Qantas’s recent announcement that MEL–PER–LHR will now originate in PER, as well as Qantas’s recent announcement of the new SYD–PER–CDG service, the concern is not likely justified.

However, the competitive impact of the Qantas–Emirates JV on trans-Tasman services has been incredibly disappointing. While JV capacity increased between 2012 and 2017, the withdrawal of Emirates fifth freedom capacity in 2018 and 2019 has been replaced by Qantas at significantly lower volumes. While the JV has protected capacity on the SYD–CHC route, total capacity has suffered dramatically, with a concentration of this capacity loss on AKL. On the Australian side of the equation, the capacity loss to BNE and MEL has been dramatic. This is amplified by Virgin’s limited return to trans-Tasman routes. So far, they have only returned to ZQN and have made not indications to return other routes. In the year to September 2023, Virgin provided 84% less seats to/from New Zealand than the year ended September 2019 (approximately 720,000 annual inbound seats). This accounts for 73% of the total capacity loss on trans-Tasman services between the same periods.

Conclusion

While Qantas and Emirates are certainly not responsible for Virgin’s capacity loss, it nevertheless means that the relative impact of Emirates‘s capacity withdrawal is even more impactful. In this context, it is almost inexplicable that the ACCC gave the Qantas–Emirates JV renewal a free pass on trans-Tasman flights. Even without the lack of Virgin capacity return, there would have been a case for the ACCC to limit the Qantas–Emirates JV to services to Australia only, and not allow the trans-Tasman services to be included. This case would have been clearly based on the JV’s reduction in capacity and the highlight concentrated nature of the market as well as the relative importance of the market. This case is only strengthened by the Virgin capacity loss which was known at the time of the ACCC decision.

There may be a strong case to reject the JV outright given the limited impact the exclusion of trans-Tasman routes may have had on the JV itself since the trans-Tasman capacity withdrawal has already taken place and the exclusion of it will not likely result in Emirates returning that capacity. Approving the JV only covering the westbound services would be a tactic reward to Qantas and Emirates for their withdrawal of capacity. Rather rejecting the entire JV would send a strong signal that JVs should not exploit weak conditionalities and that evolving market context (e.g., the withdrawal of capacity by another non-partner airline that inadvertently increases market concentration) will affect future decisions. Had previous JV renewals included stronger capacity protections, then no doubt the JV would have met those conditions (as we have seen elsewhere), but just because they were not included does not mean that the ACCC should not continue to protect that capacity in the context of future JVs.

Inexplicably, the ACCC then chose to reject a renewal in a less concentrated, and far more competitive market even though the JV partners met the substantial conditions that had been set. We can only speculate, but that serves little purpose for us. However, our conclusions are clear: the ACCC rejected the wrong JV! Instead, it has endorsed a dramatic loss of competitiveness in the trans-Tasman market, while penalising capacity increases in an increasingly competitive market between Australia and China.

On a final note, this analysis should not been seen in a static sense. Additional data over the coming months will provide a clearer picture of capacity, market concentration and passengers demand as capacity continues to return. Furthermore, airline strategies will continue to evolve, particularly in respect of Qantas and China Eastern’s individual paths and the potential for different partners or partnership configurations. While this analysis focused on relatively aggregate data in a similar manner to the ACCC process, further detailed analysis, including of non-JV capacity may add further value to the analysis. We will return to the topic and reassess as these data and analyses become available.