Australia's consumer watchdog has come out against a proposed joint business agreement between Qantas and Japan Airlines, saying the alliance "breaches competition laws" and would leave travellers worse off by reducing competition on Australia-Japan routes.
"An agreement for coordination between two key competitors breaches competition laws," Australian Competition and Consumer Commission Chair Rod Sims argued in proposing to deny the Qantas/JAL hookup in a draft decision.
"The ACCC can only authorise these agreements if the public benefits from the coordination outweigh the harm to competition. At this stage we do not consider that Qantas and Japan Airlines’ proposal passes that test."
Qantas and Japan Airlines pitched their plan in December 2020 with the aim of launching it in July 2021 as part of a gradual restart of overseas flying, with Japan considered among several promising 'travel bubble' destinations for Australia.
"The joint business means we'll be able to build on our existing relationship with JAL through oneworld to offer more routes, better flight connections and more benefits to frequent flyers” Qantas Group CEO Alan Joyce said at the time.
The deeper partnership would include an expanded codeshare relationship and "optimised schedules on flights between Australia and New Zealand and Japan, opening up more connections to more destinations beyond the major city gateways."
Members of Qantas' and Japan Airlines' respective frequent flyer programs would also enjoy a higher earning rate of Qantas points or JAL miles, along with the ability to upgrade using points or miles.
But the ACCC remains unconvinced that there's more upside than downside.
Sims highlighted the Sydney-Tokyo and Melbourne-Tokyo routes as most likely to suffer "by reducing the prospect of a strong return to competition" when international travel resumes.
A tighter hold on the market
"Granting this authorisation would seem to eliminate any prospect of Qantas and Japan Airlines competing for passengers travelling between Australia and Japan, as they did before the COVID-19 pandemic," Sims added.
"This elimination of competition would benefit the airlines at the expense of consumer."
The ACCC also reasons that with Qantas and Japan Airlines working together to "combine their operations", it would be more difficult for other airlines to seek to launch flights on those routes.
While Qantas argued that the joint business agreement would put it and JAL in a better position to resume flights between Australia and Japan as international travel restrictions ease, the ACCC's view "is that these are outweighed by the severe harm to competition."
But Qantas isn't giving up, despite being "obviously disappointed with a negative draft decision," and says that close collaboration between partner airlines will be critical in the post-COVID recovery period "as key routes are rebuilt."
In a statement issued this morning, the airline maintains that the partnership would "be good for consumers and help key parts of the tourism industry recover"
"Some of the specific benefits include better coordination of flights between Qantas and JAL so people have more choice, more options for frequent flyers, joint tourism marketing and the return of direct Qantas flights between Cairns and Japan."
"It's our job to convince the ACCC of the merits of this partnership ahead of their final determination," a Qantas spokesperson said.
"We'll review their draft decision closely and respond to their concerns, as we've done in the past."
The ACCC has called for responses to its draft determination by 27 May 2021 and says it will make a final decision "after consideration of those submissions."
Qantas+JAL vs Virgin+ANA
Mutual rivals Virgin Australia and ANA announced their own partnership in October 2019, with the intent that codeshare flights, reciprocal lounge access and an earn-and-burn arrangement for frequent flyer points would be in place by July 2020.
Those plans were scuppered by the coronavirus pandemic, which not only saw both Australia and Japan close their borders but also stopped the launch of new Virgin and ANA flights between Australia and Tokyo.
Qantas and Virgin have applied to have the window for launching their respective new Melbourne-Tokyo/Haneda and Brisbane-Tokyo/Haneda services – previously due for March 29, 2020 – pushed back to October 2021.
However, while Qantas can reboot its Japan routes with either Airbus A330 or Boeing 787 jets, the decision by Virgin Australia's new owner Bain Capital to scrap the Airbus A330 jets earmarked for Brisbane-Tokyo has left Virgin without any suitable aircraft in its fleet – meaning that Bain would need to either lease or buy jets to take up the route.