Qantas Airways Limited - s.87B undertaking

Qantas Airways Limited ("Qantas") and Impulse Airlines Holdings Limited ("Impulse") publicly announced a proposal to enter into a commercial arrangement on 1 May 2001. Qantas provided a draft submission to the ACCC on 2 May 2001. The parties argued that Impulse is a failing firm and would become insolvent on 14 May 2001. Therefore, the parties requested that the ACCC reach a view on whether the acquisition was likely to breach section 50 of the Act before 14 May 2001. As part of its investigation of the proposed acquisition, the ACCC conducted market inquiries and submissions were sought from interested parties. The ACCC also engaged an auditor to analyse and report on Impulse's financial status.

On the basis of the information gathered during its market inquiries, the ACCC identified a number of areas of concern. In particular, the Commission was concerned that the acquisition of Impulse by Qantas would:

• preclude new entry into domestic aviation services. The ACCC was particularly concerned that any new entrant airline into the Australian aviation industry would be unable to access scarce takeoff and landing slots at Sydney Airport. Currently, there are severe slot constraints in the peak time periods of 7 a.m. to 9 a.m., and 5 p.m. to 7 p.m. The ability of new competitors to access slots during these periods represents a substantial barrier to entering domestic air services in Australia and in particular, the high yield Sydney-Melbourne route;
• deny a new entrant access to the multi user domestic terminal at Sydney Airport; and
• result in an increase in the price of fares on those routes currently operated only by Qantas and Impulse. Routes of this type are primarily regional NSW routes.

The undertakings accepted from Qantas address the ACCC's concerns by including assurances on:

• the requirement for Qantas to make available to Virgin Blue up to a total of 12 slots during the morning and afternoon peak periods, each weekday, in order to provide Sydney-Melbourne services. This represents almost 60% of Impulse's slots in these peak periods.

In the event that Virgin Blue withdrew from the Australian airline industry as an independent entity, Qantas will be required to make available to a new entrant on interstate trunk routes up to 16 slots during the morning and afternoon peak periods each weekday. This represents almost 80% of Impulse's slots in these peak periods.

The undertaking by Qantas to make a significant proportion of Impulse's slots in these periods available to Virgin Blue or new entrants was fundamental to satisfying the ACCC's concerns.

• The requirement that Qantas will facilitate access to terminal space at the multi user domestic terminal at Sydney Airport to a new entrant airline.
• Restrictions on air fare increases on those routes currently operated only by Qantas and Impulse.

The Commission was also concerned about the possible reduction in the number of services to Tasmania. The Commission welcomed the commitment made by Qantas to the Tasmanian Government regarding the maintenance of services to Tasmania.

After taking into consideration the undertakings provided by Qantas, the ACCC considered that any anti-competitive detriment caused by the Qantas merger with Impulse will be minimised. Under these circumstances, the ACCC decided not to oppose the proposed merger.