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

[Quickstatus]

EK 5th freedom flights have reduced but a lot of the passengers on those flights were transiting Australia. How many I don't know but it was enough for EK to do a daily AKL-DXB non stop. So in effect the 4 to 1 is effectively a 4 to 2 or maybe slightly more than 4 to 2 because a lot of those flights were never full and likely operated below cost. And other airlines such as SQ/QR are also doing non stop ex AKL/CHC

One would think that if the incumbents are raking it in, that (simplistically) other players would jump into the fray?

What is not in the analysis is the proportion of JV EK traffic not carried due to reduction in EK 5th freedom flights (450,000 pax per year between 2017 and 2019) who were transiting in AU that are now carried by SQ/EK/QR non stop. If I recall correctly, the non stop out of AKL/CHC did not precede the JV
And dont forget NZ and SQ already operate a significant JV between AKL and SIN and likely to add seats. So to the extent that EK is a transit carrier and only interested in 5th freedom flights to capture the ex NZ market to points beyond DXB, I would need to see the total available seats ex NZ whether transtasman or beyond to be able to have an opinion.

QF/MU JV:
That they abided by the JV conditions is not a green light for a renewal of the JV.

 

[yachty]

A new analysis considers the ACCC's decision to block the renewal of the Qantas-China Eastern joint venture while simultaneously approving the renewal of the Qantas-Emirates joint venture for an additional five years. The analysis considers the evolution of the capacity on overlapping routes in the context of market demand and the ACCC's conditionalities. It argues that the ACCC erred on both decisions and would be advised to block the renewal of the Qantas-Emirates joint venture specifically due to the effect on trans-Tasman routes, and that the case for blocking Qantas-China Eastern was relatively weak.

It's a detailed analysis, but would be very happy for your feedback and to discuss here. The ACCC's decision may signal a significant change in strategy, or it may be about appearances, appearing to come down hard on Qantas where it matters less while giving them a free pass on more significant routes. The analysis is dense, but provocative!

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This is your website though isn't it?

 

[evanb]

Maybe I'm missing something here but they seem to be very reasonable.

For instance, one can find Sydney to Auckland return for ~$300:


And a similar thing for one-ways too:


Considering the fact that the airline has to pay the better part of $150 on taxes and fees, one could make the argument that you are actually getting a better deal on international flights than domestic flights. Indeed, Qantas' most profitable passenger market is domestic not international (albeit both do turn a profit).

-RooFlyer88

Possibly, but you're looking at a very small segment of capacity nearly two months out. Look in mid Dec and JQ are charging $561 for a starter fare on the same route. Same day, JQ are charging $179 for a starter fare on MEL-BNE. Point being, the competitive issues are mostly seen during times of higher demand when the revenue and yield management can exploit smaller capacity.

Post automatically merged: Nov 29, 2023

This is your website though isn't it?

Point being?

 

[evanb]

EK 5th freedom flights have reduced but a lot of the passengers on those flights were transiting Australia. How many I don't know but it was enough for EK to do a daily AKL-DXB non stop. So in effect the 4 to 1 is effectively a 4 to 2 or maybe slightly more than 4 to 2 because a lot of those flights were never full and likely operated below cost. And other airlines such as SQ/QR are also doing non stop ex AKL/CHC

One would think that if the incumbents are raking it in, that (simplistically) other players would jump into the fray?

What is not in the analysis is the proportion of JV EK traffic were transiting in AU that are now carried by other carriers and EK non stop

We focus on capacity since this is the metric that ACCC use to set the conditional benchmarks. The article does refer to pax at points as well, but this is less of the ACCC's mode of anlaysis.

But I think it's a poor assumption that most pax were transiting. We know that in 2016 (EK's peak), they had a 12% points-to-point pax market share, i.e. pax between Aus and NZ (not continuing to DXB). This amounted to 828,077 pax against max seats (assuming then zero onwards pax to/from DXB) of 1,348,453. So if we assume 100% loads, then 61% of EK's load were points-to-point Aus-NZ. Since loads were most definitely less than 100%, then we know that the 61% was even higher. So the assumption isn't validated, the majority of the pax carried trans-Tasman by EK were point-to-point, not onwards.

But it's an interesting question nonetheless and one which is partially answerable. That said, the net increase in capacity by QF and JQ (2017 to 2019) was 373,765 so far less than the 828,077 (significantly so).

 

[Quickstatus]

assuming then zero onwards pax to/from DXB

I don't think you can assume that. That would be very unrealistic. If it were zero, EK and QR would not be putting on expensive non stop point to point (effectively) between AKL/CHC and DXB. And SQ would not be increasing its large presence for the ex NZ flights.

I dont think you can even assume 100% loads. When EK were doing the these flights, they were very cheap and easy to book cheap fares quite late - implying that loads were not 100% of if they were at 100% or close to, they had to be priced at perhaps uneconomic levels. Are A380 flights economic on are short durations flights?. And now with the advent of ultralong duration non stop flights using much more fuel efficient A350/787 (that were not available during the JV period) are A380 tag flights even economic anymore in spite of any "leg up" by a JV?

What were the total available international seats ex NZ during the relevant period? Without that "fuller" picture it is difficult to accurately say if the reduction in 5th freedom flights via the QF-EK JV had a negative impact.

 

[evanb]

I don't think you can assume that. That would be very unrealistic. If it were zero, EK and QR would not be putting on expensive non stop point to point (effectively) between AKL/CHC and DXB. And SQ would not be increasing its large presence for the ex NZ flights.

I dont think you can even assume 100% loads. When EK were doing the these flights, they were very cheap and easy to book cheap fares quite late - implying that loads were not 100% of if they were at 100% or close to, they had to be priced at perhaps uneconomic levels. Are A380 flights economic on are short durations flights?. And now with the advent of ultralong duration non stop flights using much more fuel efficient A350/787 (that were not available during the JV period) are A380 tag flights even economic anymore in spite of any "leg up" by a JV?

What were the total available international seats ex NZ during the relevant period? Without that "fuller" picture it is difficult to accurately say if the reduction in 5th freedom flights via the QF-EK JV had a negative impact.

I think I may have overcomplicated the point. We don't know the exact number, but we know the actual minimum and maximum, which allows us to draw a clear conclusion. The total number of seats on the aircraft of EK's flights from AUS-NZ-AUS in 2016 was 1,348,453 and we know that they carried 828,077 passengers that got on and off in AUS, not DXB. This means that at least 61% of the actual pax carried were point-to-point pax (assuming 100% load factor is unrealistic, but as that number declines, the 61% actually increases, not decreases). This means that the majority of pax were not not taking the flight from DXB to AKL or vice versa, but rather between DXB and AUS, and AUS and NZ separately. At best, 39% of the total pax were going DXB-NZ on those flights, but likely lower (again, we know this is the max). A further important point is that the flights EK withdrew were not replaced with additional non-stops to NZ.

My previous article highlighted how the EK fifth freedom routes came from a genesis of aircraft utilisation as EK aircraft generally have very long ground times in MEL, SYD and BNE in order to time flights to the DXB connecting banks (Sure, an B787 or A350 is going to be more economical over a shorter leg, but the A380's asset utilisation is a sunk cost since it's going to sit in SYD, BNE or MEL for 12+ hours). This meant that the asset cost was a sunk cost, lowering the relative marginal cost of the flight. These flights were certainly not uneconomic to EK or they would never have begun them in the first place, and never have increased the gauge to A380 in the early 2010s. They operated them for years before the JV and even the first few years of the JV. It was only once the ACCC removed the conditions and weakened them that QF and EK saw the opportunity to act like a cartel (recalling that in the JV they share costs and revenues and this jointly reducing supply in order to get better yields is a net benefit but requires coordination).