Is it time for the ACCC to lose its power to veto international JVs?

[justinbrett]

This is far from the case. It's correct that the QF-EK JV is not a revenue sharing JV like QF-AA is, but that is because QF and EK don't fly sufficient overlapping routes to warrant it. It's also the reason why many QF FF benefits don't accrue on EK tickets. However, that's somewhat besides the point.

The QF-EK JV is stratospherically different from the VA-QR codeshare. QF-EK coordinate scheduling, capacity and pricing, going as far as coordination of inventory and yield management. They can also combine various sales and operational functions, although it's not clear the extent to which this actually happens. VA-QR can't coordinate scheduling, capacity and pricing. In fact, QR maintain full pricing control and VA may recover the costs from QR, but VA have no say in pricing of itineraries involving QR, nevermind coordinating.

The ACCC clearance of what QF and EK can do far exceeds what they actually do. Notably there is no geographic restriction on their alliance so they could coordinate on US routes if they wanted to, the exclusion is by their election (obviously QFs).

The framework of the alliance is a relic from the days when QF flew via DXB. The way it functions now is not much different to VA/QR, while they can coordinate on pricing and scheduling I don’t see much of that going on. There may be some on the SIN/TT routes but not the main European routes.

 

[RooFlyer]

@RSVKanga , you should add BITRE to the list of government agencies that need to be neutered reformed for Qantas' benefit. Outrageously, they've just published on-time statistics for April that show The National Carrier (TM) had the worse arrival on-time performance of any of the six airlines surveyed, the second worst departure performance (JQ was worst) and the second worst cancellation rate (Skytrans was the worst).

This is obviously very damaging for the National Carrier (TM) and therefore Australia and BITRE should be put in its place - counting stray dogs or somesuch.

 

[RSVKanga]

Never mind me. I'm just having a bit of fun with the ludicrous proposition that competition should be restricted so Qantas can increase its profit.

How is that funny?

Isn’t it in Australia’s best economic and sovereign interests that Australian-owned businesses who participate in major international markets are successful? Other countries do this, even if their national carrier is private/majority private owned.

Success for QF is more likely when they have more foreign carriers as strategic friends, not forced enemies by some counterproductive “competition watchdog”

Also, maybe could you explain why QF should not collaborate with MU in the Australia-China market, which has nine different airlines flying between the two countries? How on earth does that reduce ‘competition’? I’m waiting.

 

[RSVKanga]

Notably there is no geographic restriction on their alliance

There is. When Qantas launched SIN-LHR and PER-LHR in 2018, EK wanted to codeshare on those flights but they were denied due to “traffic rights restrictions”

 

[justinbrett]

There is. When Qantas launched SIN-LHR and PER-LHR in 2018, EK wanted to codeshare on those flights but they were denied due to “traffic rights restrictions”

Read the authorisation. There is no geographic restriction from the ACCC.

In those routes above EK would need approval by Singapore and UK authorities.

 

[RooFlyer]

Also, maybe could you explain why QF should not collaborate with MU in the Australia-China market, which has nine different airlines flying between the two countries? How on earth does that reduce ‘competition’? I’m waiting.

Have a chat with Vladimir while you are Waiting for Godot

 

[#flying]

Also, maybe could you explain why QF should not collaborate with MU in the Australia-China market, which has nine different airlines flying between the two countries? How on earth does that reduce ‘competition’? I’m waiting.

The answer to your question is in the draft determination on the ACCC website. Have you read it?

 

[RSVKanga]

The answer to your question is in the draft determination on the ACCC website. Have you read it?

Of course I have. The whole document is myopic at the best and screams of an anti-QF agenda at the worst.

Sure, there are only two carriers that fly between SYD and PVG (QF/MU) but what they extraordinarily fail to recognise is that many of the people flying to Shanghai also choose to fly one stop via another Chinese port or a city like SIN, along with the fact that there are so many other Chinese destinations that eight other Chinese carriers operate to from Australia. Their decision greatly works against sensible competition and the Australian ‘fair go’ mentality. Ridiculous.

 

[Albert Hoffman]

Also, maybe could you explain why QF should not collaborate with MU in the Australia-China market, which has nine different airlines flying between the two countries? How on earth does that reduce ‘competition’? I’m waiting.

Because it would increase prices and and create a monopoly on the Sydney/Melbourne-Shanghai route. Simple.

Is the QF troll farm located in Manila or Hobart?

 

[RSVKanga]

Because it would increase prices and and create a monopoly on the Sydney/Melbourne-Shanghai route. Simple.

What do you mean by “create”?

There already is a monopoly on MEL-PVG and soon to be SYD-PVG.

No other carrier apart from MU has expressed interest in flying those routes. So if it’s a monopoly, so be it.

Also, as mentioned above, the PVG market might be a monopoly but the overall Australia-China market is the complete opposite; in fact it’s a textbook example of extreme capacity dumping and oversaturated competition from nine airlines. There are many other Chinese destinations that the eight other airlines fly to (while dumping capacity) from Australian cities.

 

[SCM]

I don't agree at all with OP, but I agree with this guy;

I have the opposite view, the ACCC has been permitting too much concentration of market power across all industries not just aviation. It’s partially why we pay so much more than in other countries.

JVs have their place, but its crazy to permit a JV between the only two carriers serving a market.

The new ACCC leadership seems to have a better outlook than the past two decades.

The ACCC has allowed far too much concentration within the ISP space, then now in the banking space, and it's totally asleep in the airline space. Why Qantas doesn't have to compete with EK I have no idea.

These relationships only make sense if the two carriers cannot hope to ever fly the same route - for example, VA and it's international partners. Qantas shouldn't be allowed to have any international partners at all - they are already in an alliance, anything else is simply not necessary.

The notion that other airlines having their own alliances is a good argument is a bit ridiculous - why would we aim to be the bottom of the barrel for competition? The whole purpose of ACCC in this context is to encourage competition, so we shouldn't be looking to markets where none exists as a shining example.

 

[RSVKanga]

Qantas shouldn't be allowed to have any international partners at all

Wow. I think this comment has just unlocked a whole new level of the anti-QF agenda. Congratulations.

Please do elaborate. If you hold this view, would you support an airline like QR not having any international partners (because they are already in an alliance)? SQ? UA? BA? AA? DL? Does your view apply to all alliance-affiliated airlines in the world, or just QF?

It’s a very odd position to take and I’m genuinely interested to hear more about your view.

 

[RooFlyer]

I think this comment has just unlocked a whole new level of the anti-QF agenda.

Excellent.

 

[anat0l]

Isn’t it in Australia’s best economic and sovereign interests that Australian-owned businesses who participate in major international markets are successful? Other countries do this, even if their national carrier is private/majority private owned.

Which other said countries that are capitalist free-market economies do this for their national carrier, as you mention?

And, further to that, do these governments:

• Provide such support for their national carriers that is either within the national interest and/or has the broad active support of the population?
• Provide such support for the national carrier free from personal gain, corruption and political favour?
• Actually see that such support is beneficial to creating or maintaining a high quality national carrier?

 

[evanb]

The ACCC clearance of what QF and EK can do far exceeds what they actually do. Notably there is no geographic restriction on their alliance so they could coordinate on US routes if they wanted to, the exclusion is by their election (obviously QFs).

The framework of the alliance is a relic from the days when QF flew via DXB. The way it functions now is not much different to VA/QR, while they can coordinate on pricing and scheduling I don’t see much of that going on. There may be some on the SIN/TT routes but not the main European routes.

This is a fundamental misunderstanding of how codeshares and JVs operate. VA and QR (same as VA with UA and SQ) have a freesale codeshare with some caveats. Firstly, it doesn't involve any joint pricing! VA has no engagement with QR, UA & SQ on pricing. When selling a ticket that may involve a VA segment, QR, UA & SQ can seek whatever prices they wish from an itinerary and compensate VA based on the published fare. VA can't influence that. When VA sell a QR, UA & SQ segment under their own ticket, they do the same. There are no joint fares - just have a look at the VA fare rules!

That's very different from a JV. For example, all of QF's Australia-Europe fares are listed as QF/EK fares allowing a multitude of permutations ticketing on QF or EK stock. While the fares list other airlines as being combinable, QF fares are only ticketable on QF or EK. This is indicative of pricing coordination and typically found for JV arrangements.

Various surcharges and flight exclusions are applied to a multitude of flights in certain windows to manage flows and yields on certain routings/flights/dates. These are only applicable to QF/EK flights, but not to any other carriers. Again, this is strongly indicative of capacity and yield management coordination. The airlines are literally coordinating micro adjustments of fares and capacity.

Just because the prices are not the same on a given day are not available on both airlines doesn't mean they're not coordinating. In fact, with the systems and technology available to them now, it would be stupid to do it in the way first generation JVs were implemented - you don't see that on the QF-AA JV anymore either! Have a look and you'll often see AA pricing the same QF flight differently - are you suggesting they're not coordinating and not operating a JV?

 

[WilsonM]

Joint ventures are extremely useful tools in some cases - when two airlines are attempting to break into a market that is dominated by other carriers, it makes perfect sense to join forces both from a companies point of view, and a consumer point of view. A JV in this case would allow some credible competition to enter the market while combining the resources of two companies. Great!

However, Qantas' proposed JV's that have been knocked back are all monopolistic in nature, as there is very little competition outside of the proposed JV partners. For example, no other airline competes on direct ANZ-HKG routes except for QF/CX. Yeah, you can connect in SIN, BKK, TPE or Mainland China, sure. But the fact is that most of the population, especially outside this forum, don't actually like flying, and would prefer to fly direct for 9.5 hours rather then fly 7.5 hours to SIN, wait 3 hours, and then fly another 4. Indirect flights are not competing with direct flights - it's a different product, and its priced accordingly. QF itself knows this - for PER-FCO, QF codeshares on EK are over $500 cheaper than QF5/6 in Y on many dates that I've just checked in August (as an example).

A QF/JL JV would be another major monopoly - NH operate 2 daily to SYD, a 3x weekly to PER, and VA's abhorrent CNS-HND daily offering. JL operate SYD-HND and MEL-NRT daily, while QF does BNE/MEL-NRT daily, SYD-HND daily (with extra flights over the Australian summer), and JQ does BNE/CNS-NRT daily. So, that's 7 widebodies a day versus at best the capacity of 3, not even including the JQ flights to KIX. The Qantas group has (very roughly) 50% of capacity on Australia-Tokyo alone, so why would it be better to further dominate the market? It's not protecting Australian jobs, as Qantas' market position is secure already. It's also not stopping a hostile government...

I don't understand how creating an environment where competition is lacking is in the national interest. The consumer as a whole benefits greatly from competition. Simple economics. If you want to support Australian businesses, great. But why is the solution Australian consumers pay more - when company enjoys a dominating share of the market, this is what happens. Qantas is not a government-owned entity, and is under no obligation by itself to act "in the national interest". It acts in its own interests.

 

[evanb]

The ACCC has allowed far too much concentration within the ISP space, then now in the banking space, and it's totally asleep in the airline space. Why Qantas doesn't have to compete with EK I have no idea.

These relationships only make sense if the two carriers cannot hope to ever fly the same route - for example, VA and it's international partners. Qantas shouldn't be allowed to have any international partners at all - they are already in an alliance, anything else is simply not necessary.

The notion that other airlines having their own alliances is a good argument is a bit ridiculous - why would we aim to be the bottom of the barrel for competition? The whole purpose of ACCC in this context is to encourage competition, so we shouldn't be looking to markets where none exists as a shining example.

The ACCC seem to have made multiple errors and the wrongs don't cancel each other out. They've approved JVs which have had a detrimental impact on competition (e.g. QF-EK's JV on trans-Tasman routes, VA's codeshare with NZ that reduces incentives to VA to enter route) but have then rejected JVs where it would positively benefit competition (e.g. QF-MU).

It's also a fundamental misunderstanding of alliances. Alliances were something from the 1990s that are not functionally relevant in the contemporary market. Bilateral and multilateral praetorships are now focussed on JVs, some of which are borne out of the older alliances. The challenge with your assertion is that the alliance membership doesn't provide any integration other than FF benefits. Any codesharing still requires independent bilateral agreements between airlines - in Australia, these agreements invariably requires ACCC and/or IASC approval.

 

[evanb]

Joint ventures are extremely useful tools in some cases - when two airlines are attempting to break into a market that is dominated by other carriers, it makes perfect sense to join forces both from a companies point of view, and a consumer point of view. A JV in this case would allow some credible competition to enter the market while combining the resources of two companies. Great!

However, Qantas' proposed JV's that have been knocked back are all monopolistic in nature, as there is very little competition outside of the proposed JV partners. For example, no other airline competes on direct ANZ-HKG routes except for QF/CX. Yeah, you can connect in SIN, BKK, TPE or Mainland China, sure. But the fact is that most of the population, especially outside this forum, don't actually like flying, and would prefer to fly direct for 9.5 hours rather then fly 7.5 hours to SIN, wait 3 hours, and then fly another 4. Indirect flights are not competing with direct flights - it's a different product, and its priced accordingly. QF itself knows this - for PER-FCO, QF codeshares on EK are over $500 cheaper than QF5/6 in Y on many dates that I've just checked in August (as an example).

A QF/JL JV would be another major monopoly - NH operate 2 daily to SYD, a 3x weekly to PER, and VA's abhorrent CNS-HND daily offering. JL operate SYD-HND and MEL-NRT daily, while QF does BNE/MEL-NRT daily, SYD-HND daily (with extra flights over the Australian summer), and JQ does BNE/CNS-NRT daily. So, that's 7 widebodies a day versus at best the capacity of 3, not even including the JQ flights to KIX. The Qantas group has (very roughly) 50% of capacity on Australia-Tokyo alone, so why would it be better to further dominate the market? It's not protecting Australian jobs, as Qantas' market position is secure already. It's also not stopping a hostile government...

I disagree with your premise. Consumers may prefer non-stop services, but we simply can't have high frequency non-stop services between every two points in the world. Hubs are incredibly important in that they create efficiencies and lower the costs for consumers. In this context the idea that hubs don't add to competition is ludicrous! Let's just consider SQ group, second largest international carrier to/from Australia, yet upwards of 80% of their traffic is connecting. Your argument would then carry that Singapore don't compete with other carriers?

To the JV argument though. I think you're oversimplifying it. QF's argument to the ACCC was that without the JV, QF and JL would be more likely to concentrate Tokyo capacity on SYD rather than fragmenting capacity to BNE and MEL. This was partly due to the challenges of the timings of the HND slots and the network effects. Together they had 3x daily HND slots compared to ANA's 2x. If they could coordinate, they'd likely shift at least 1 or even maybe 2 to BNE or MEL. But not they can't, so all airlines are concentrating them on SYD to maximise their individual network effects. At the same time, QF now don't have connecting options from HND.

So yes, the ACCC has increased competition in one way, not allowing QF and JL to partner. But they have also limited QF and JL to offer more competitive products. While SYD-HND is now more competitive, other routes become less competitive.

And no, QF-JL wouldn't be a monopoly. Words have meaning.

 

[WilsonM]

I disagree with your premise. Consumers may prefer non-stop services, but we simply can't have high frequency non-stop services between every two points in the world. Hubs are incredibly important in that they create efficiencies and lower the costs for consumers. In this context the idea that hubs don't add to competition is ludicrous! Let's just consider SQ group, second largest international carrier to/from Australia, yet upwards of 80% of their traffic is connecting. Your argument would then carry that Singapore don't compete with other carriers?

To be fair, a hub-and-spoke model makes perfect sense for many markets, with Australia-Europe being a clear and obvious example. But I'm not commenting on that particular market, as that's not the premise for the proposed JV's. The proposed JV's are all focused on point-to-point services to particular destinations - SQ are a global force that have a large amount of control over the Australian market, sure, but they're not nearly as much of a force on the Australia - Japan market, as an example.

Also, higher frequency non-stop services are clearly the trend, as Sunrise, and to a greater extent, general aircraft manufacture shows - long range narrowbodies and fuel efficient but smaller widebodies are definitively favoured over high-capacity 747s and A380s.

So yes, the ACCC has increased competition in one way, not allowing QF and JL to partner. But they have also limited QF and JL to offer more competitive products. While SYD-HND is now more competitive, other routes become less competitive.

But how would allowing JL and QF to partner help other routes become more competitive? This would just tilt the scales further in their camp, without giving NH or any other competitors who want to enter the market the ability to offer what QF and JL can. Yes, it becomes a better customer experience to fly from BNE/MEL to HND, rather than NRT, but logically this would lead to an increase in price as well.

And no, QF-JL wouldn't be a monopoly. Words have meaning.

Not a literal monopoly, that's absolutely true, my apologies. That being said, it would be a very dominating presence that doesn't have overly credible competition.

 

[RooFlyer]

I don't understand how creating an environment where competition is lacking is in the national interest.

That’s not the argument that was being proposed. The argument was that it was primarily against Qantas' interests and as a consequence, against the national interest.

The first would be true, but the second certainly does not follow, except for Qantas shills.