The Australian Competition and Consumer Commission has proposed granting continued authorisation* to an alliance which has operated between Qantas and British Airways since 1995.
"The draft decision is finely balanced", ACCC Chairman, Mr Graeme Samuel, said today. "The Joint Services Agreement, or JSA, has been authorised twice before, but in a dynamic industry like international aviation there is a need to regularly revisit such arrangements.
"The JSA allows agreement between competitors to fix prices. This aspect requires very careful scrutiny by the ACCC to ensure there is continuing overall benefit to the public.
"The ACCC faced a similar challenge when considering the recent Qantas/Air New Zealand alliance. Then, it found that the public benefit did not outweigh the anti-competitive detriment. The ACCC rejected that alliance because the airlines jointly held a 90 per cent share of the trans-Tasman market and it could not rely on a competitive constraint from a Virgin Blue subsidiary, which had not even entered the market, and fifth freedom carriers which held a minor market share.
"It is clear from submissions made to the ACCC that there has been strong price competition on the Kangaroo route, particularly for leisure travellers, over recent years, and the ACCC is satisfied that this price competition will continue. On the other hand in the Qantas/Air New Zealand matter the ACCC believed that, as acknowledged by the Applicants in their submissions, the proposed alliance would lead to higher prices for travellers on trans-Tasman routes.
"Under the JSA, Qantas and BA are seeking to continue an arrangement which allows the airlines to coordinate scheduling, marketing, sales, freight, pricing and customer service activities. The coordination occurs on services between Australia and Europe, including services between Australia/Europe and intermediate points such as Bangkok and Singapore.
"The ACCC received submissions from Virgin Blue and Virgin Atlantic opposing authorisation. The ACCC has competition concerns, but believes that overall the JSA results in sufficient benefit to the public to allow it to be authorised.
"The ACCC believes that the JSA does result in a substantial lessening of competition in the market for business passengers between Australia and Britain where the JSA partners hold 60 per cent of the market overall and account for nearly 70 per cent of Australian resident business travellers in that market. Moreover, the dominance of Qantas and BA in this market is reinforced by slot constraints at Heathrow airport which provide barriers to market entry by new carriers and expansion by existing carries.
"However, such business passengers account for only a small portion of people carried by the airlines. The alliance does not result in a significant lessening of competition in other business passenger markets or the substantial markets for leisure passengers to Europe or South East Asia".
Mr Samuel said the ACCC believed that any detriment arising in the market for business passengers travelling between Australia and Britain was outweighed, at the margin, by benefits arising from cost savings, the availability of discount seats and schedule connections.
"The leisure passenger markets in which the JSA partners operate are very competitive at the moment through the presence of carriers such as Singapore Airlines, Thai International and Emirates.
"Under these circumstances there is a strong possibility that cost savings made by Qantas and BA under the JSA will end up, one way or another, in the hands of consumers".
While acknowledging schedule connection benefits from the JSA, Mr Samuel noted that the level of such benefits had reduced in recent years not only as a result of Qantas' withdrawal from Paris and Rome but from developments involving other carriers.
"Consumers have more options outside the JSA for accessing points in Europe through expanded Asian carriers' route networks, increased access to European carriers at midpoints such as Singapore and the proliferation of low cost carriers providing intra Europe travel".
"The markets in which Qantas and BA operate the JSA are generally highly contested and they have a combined share of around 40 per cent of passengers travelling between Australia and Europe and 30 per cent of those travelling between Australia and South East Asia.
"There is obviously substantially more pressure for the alliance partners to pass on cost savings to consumers under the JSA than there was under the alliance proposed between Qantas and Air New Zealand".
Mr Samuel said that while Qantas and BA had sought indefinite authorisation of their alliance in recognition of the volatility of the aviation industry, the ACCC proposes that authorisation be limited to five years.
*The Trade Practices Act 1974 prohibits certain forms of anti-competitive arrangements including arrangements between competitors which limit their ability to deal with whom they choose or on the terms they choose (including price) and arrangements which substantially lessen competition. The ACCC's authorisation process provides immunity from court action under the Act arising from certain anti-competitive agreements. Authorisation can only be granted where the ACCC is satisfied that the public benefit arising from the conduct outweighs any anti-competitive detriment.