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

[evanb]

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!

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

November 2023 In 2013, Qantas Airways (QF) entered a joint venture (JV) agreement with Emirates Airline (EK) covering routes between Australia and Asia, Europe (including the United Kingdom(UK)), the Middle East, North Africa, and to New Zealand. JVs go beyond a typical codeshare and ticketing...

analyticflying.com

 

[SYD]

That analysis seems to over emphasise the small Trans Tasman element.

 

[evanb]

That analysis seems to over emphasise the small Trans Tasman element.

I'm not sure what you mean by the small Trans Tasman element? Trans Tasman is the largest international market to/from Australia, but also now the least competitive of all major markets.

It's also a phenomenally important part of the QF-EK JV and rather inexplicable that the ACCC have given them a free ride - no conditions! They have rewarded QF and EK for forming a protected cartel and then reducing their capacity in a market which is already capacity constrained due to VA's exit from AKL, CHC and WLG.

The analysis fully acknowledges that the westbound element to the JV is not the same as trans-Tasman and that a remedy to continue this and deal with trans Tasman separately is possible. However, it's then rather inexplicable that they then rejected the China Eastern tie up when the airlines had actively met the capacity growth conditions in a market being flooded with capacity. That just doesn't add up!

 

[encryptededdy]

I think the establishment of the QF/EK JV was definitely somewhat responsible for the reduction in EK's trans-tasman flying initially, however I'm not totally convinced that they would've continued the large number of TT routes to this day, even if they weren't part of the JV.

It's possible that Emirates decided that it would be better to serve NZ with nonstop flights, for instance when they introduced the A380 from Auckland to Dubai (instead of via. MEL/SYD), especially as competitors like QR added nonstop flights to their hub from Auckland.

I don't doubt that the presence of Emirates' TT capacity pushed down Trans-Tasman pricing, but was this something that Emirates always wanted to continue? Maybe they have enough demand now that it makes more sense for them and their customers to operate nonstop? I don't think frequency (beyond daily) is really necessary for these long routes, so maybe Emirates decided to drop the TT flights once they could run an A380 all the way to Dubai.

After all, AKL-x(SYD/MEL)-xDXB-(Europe) isn't super pleasant with two stopovers.

I guess one interesting question would be: how many seats on those Emirates trans-tasman services were pax continuing onto DXB? Is it possible that nowadays those pax just fly nonstop to DXB instead? I don't know if that data is available. Also, how many people are flying Qantas' TT services just to connect onto Emirates these days? (I assume we will never know this).

As an aside, I wonder what the effect AirNZ's removal of their route to LHR has had on all this. Maybe it's pushed more capacity onto the likes of EK offering one-stop services to London?

 

[SYD]

Perhaps change the thread title to “Should the ACCC have blocked the TT element…”.

Although, I doubt that would have improved the competitiveness of the market in the short term. When some of the other 5th freedom flights ratchet up, we might see some improvements but probably only on select routes.

Odd that VA 2.0 have been so slow to ramp up the TT routes. Mind you, they just resuscitated their NZ agreement themselves…

 

[Quickstatus]

Trans Tasman is the largest international market to/from Australia

"Largest" on what basis?

 

[encryptededdy]

Mind you, they just resuscitated their NZ agreement themselves

Yeah, their NZ agreement is to codeshare on TT though, which is basically admission that VA2 has no interest in operating TT (excl. ZQN) right now. Off-topic for this thread but I've always wondered about the commercial reasons behind that decision. They're obviously interested in operating some short-haul intl' routes (+ Tokyo), but why not AKL/WLG/CHC?

 

[evanb]

Perhaps change the thread title to “Should the ACCC have blocked the TT element…”.

Although, I doubt that would have improved the competitiveness of the market in the short term. When some of the other 5th freedom flights ratchet up, we might see some improvements but probably only on select routes.

Odd that VA 2.0 have been so slow to ramp up the TT routes. Mind you, they just resuscitated their NZ agreement themselves…

Possibly, but it really is a critique of the ACCC reactiveness & analysis. I don't see the case for blocking QF-MU either. The context and analysis of all are important.

Which 5th freedom flights? I don't see a return of SQ to trans Tasman. QR are out. MU and OD is rather small in comparison to the capacity losses.

 

[kangarooflyer88]

There is certainly a national interest in Qantas Europe, Middle East and Africa (aka Qantas EMEA d/b/a as Emirates Airlines) continuing to operate for an additional 5 years given the lack of coverage by Qantas mainline to these destinations. Whether a rival Middle East airline like EY or HA could fill that void, serve the national interest whilst respecting human rights remains to be seen.

-RooFlyer88

-RooFlyer88

 

[evanb]

"Largest" on what basis?

Seat capacity, pax numbers, short term arrivals and returning residents.

 

[evanb]

There is certainly a national interest in Qantas Europe, Middle East and Africa (aka Qantas EMEA d/b/a as Emirates Airlines) continuing to operate for an additional 5 years given the lack of coverage by Qantas mainline to these destinations. Whether a rival Middle East airline like EY or HA could fill that void, serve the national interest whilst respecting human rights remains to be seen.

-RooFlyer88

-RooFlyer88

Indeed, fully agree with that. But this doesn't extend to trans-Tasman. JV approvals are very explicit about geography. For example, the QF-MU covers just China, nothing onward, while QF-EK's own JV excludes specific points in Europe and Africa. ACCC can easily exclude trans-Tasman, or create conditions.

 

[kangarooflyer88]

Indeed, fully agree with that. But this doesn't extend to trans-Tasman. JV approvals are very explicit about geography. For example, the QF-MU covers just China, nothing onward, while QF-EK's own JV excludes specific points in Europe and Africa. ACCC can easily exclude trans-Tasman, or create conditions.

No one cares about trans-tasman. Look at the flights allowed to take off from the East Coast of Australia to NZ (and vice versa):

• LATAM : Sydney to Auckland
• Air Asia X : Systen to Auckland
• (Historical) QF EMEA (Emirates): Sydney to Auckland
• QF EMEA (Emirates) : Sydney to Christchurch

There's plenty of competition and plenty of appetite to serve that market either as a tag on flight (in the case of the above flights) or as a direct competition by NZ, JQ, QF, VA, etc.

-RooFlyer88

 

[evanb]

I think the establishment of the QF/EK JV was definitely somewhat responsible for the reduction in EK's trans-tasman flying initially, however I'm not totally convinced that they would've continued the large number of TT routes to this day, even if they weren't part of the JV.

It's possible that Emirates decided that it would be better to serve NZ with nonstop flights, for instance when they introduced the A380 from Auckland to Dubai (instead of via. MEL/SYD), especially as competitors like QR added nonstop flights to their hub from Auckland.

I don't doubt that the presence of Emirates' TT capacity pushed down Trans-Tasman pricing, but was this something that Emirates always wanted to continue? Maybe they have enough demand now that it makes more sense for them and their customers to operate nonstop? I don't think frequency (beyond daily) is really necessary for these long routes, so maybe Emirates decided to drop the TT flights once they could run an A380 all the way to Dubai.

After all, AKL-x(SYD/MEL)-xDXB-(Europe) isn't super pleasant with two stopovers.

I guess one interesting question would be: how many seats on those Emirates trans-tasman services were pax continuing onto DXB? Is it possible that nowadays those pax just fly nonstop to DXB instead? I don't know if that data is available. Also, how many people are flying Qantas' TT services just to connect onto Emirates these days? (I assume we will never know this).

As an aside, I wonder what the effect AirNZ's removal of their route to LHR has had on all this. Maybe it's pushed more capacity onto the likes of EK offering one-stop services to London?

Indeed, it's not a fait accompli that EK would have maintained their schedule as is, however at it's peak, they carried an awful lot of trans Tasman traffic - 12% of all trans-Tasman pax in 2016 (not capacity, and not continuing pax, but between points in Aus and NZ)! I indicate that anything from ACCC now wouldn't likely bring back the capacity, but that they gave QF-EK the cover to do this by removing conditions or not applying effective conditions. I think it's safe to say that prices would be, and will be higher without this capacity.

However, the EK strategy with trans-Tasman fifth freedom was also about aircraft utilisation, not just the DXB-NZ traffic (see What limits fifth freedom flights to Australia? - Analytic Flying). The real winner from this though is QF in that EK withdraws, they partially backfill but with an overall lower capacity, pushing up yields. They have done what cartels do when allowed to act as a cartel.

And while I agree that they have a better business case for non-stop to NZ now (longer range aircraft bigger demand) that isn't ACCC's consideration. Instead, the loss of capacity affects trans-Tasman and ACCC had the opportunity to protect that capacity as a condition for allowing QF-EK to coordinate on those overlapping routes in the same way they have used the same to protect SYD-PVG capacity.

 

[evanb]

No one cares about trans-tasman. Look at the flights allowed to take off from the East Coast of Australia to NZ (and vice versa):

• LATAM : Sydney to Auckland
• Air Asia X : Systen to Auckland
• (Historical) QF EMEA (Emirates): Sydney to Auckland
• QF EMEA (Emirates) : Sydney to Christchurch

There's plenty of competition and plenty of appetite to serve that market either as a tag on flight (in the case of the above flights) or as a direct competition by NZ, JQ, QF, VA, etc.

-RooFlyer88

No one cares about trans-Tasman except the >7 million annual passengers. We have a single aviation market with NZ, hence the fifth freedom, but it's tiny tiny capacity. In 2022, fifth freedom carriers accounted for 2.7% of total trans-Tasman pax.

 

[jrfsp]

Trans Tasman fares are still generally way above pre Covid levels. The airlines must be making a killing, fares are often $500-1000 one way. Certainly for distance flown has to be one of the most expensive intl markets from Australia.

 

[justinbrett]

The amazing thing about the QF & EK partnership is that it's actually global. The restrictions of not including the Americas & South Africa are self imposed and are not mentioned at all in the ACCC authorisation, and could be removed at any time if QF & EK wish.

It seems to me the logical thing to do, if ACCC have concerns with TT, is just to carve out that market from the authorisation.

 

[TheInsider]

Trans Tasman fares are still generally way above pre Covid levels. The airlines must be making a killing, fares are often $500-1000 one way. Certainly for distance flown has to be one of the most expensive intl markets from Australia.

And yet on a one way SYD-AKL these are the taxes:

 

[kangarooflyer88]

Trans Tasman fares are still generally way above pre Covid levels. The airlines must be making a killing, fares are often $500-1000 one way. Certainly for distance flown has to be one of the most expensive intl markets from Australia.

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

 

[Rhode]

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!

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

November 2023 In 2013, Qantas Airways (QF) entered a joint venture (JV) agreement with Emirates Airline (EK) covering routes between Australia and Asia, Europe (including the United Kingdom(UK)), the Middle East, North Africa, and to New Zealand. JVs go beyond a typical codeshare and ticketing...

analyticflying.com

Personally I’m very happy to have the option to be in an Emirates 380 in First with a QF number rather than a Qantas 380 which is a very poor cousin in my opinion.

 

[evanb]

The amazing thing about the QF & EK partnership is that it's actually global. The restrictions of not including the Americas & South Africa are self imposed and are not mentioned at all in the ACCC authorisation, and could be removed at any time if QF & EK wish.

It seems to me the logical thing to do, if ACCC have concerns with TT, is just to carve out that market from the authorisation.

Somewhat. South Africa received attention in the original 2013 application. I suspect it was clear that ACCC had reservations, particularly in the context of the old QF-SAA partnership that they canned. There are a number of other exclusions that one might consider self imposed, but are functionally due to some complexities in ASAs (e.g. India on the EK side).

But yes, it's a phenomenally and unusually vast JV which links to the point I raise about how the ACCC might consider the relative importance of a market alongside impact on competition. It's a shortcoming of the ACCC approach (and their naivety in the way they approach international air travel) in that they really only consider the overlapping routes and pay little attention to network effects. In this case, the overlapping trans Tasman routes are straightforward, but they simply accept the case in respect of network effects with little analysis in the case of QF-EK, but outright ignoring it in the case of QF-MU.

Post automatically merged: Nov 29, 2023

Personally I’m very happy to have the option to be in an Emirates 380 in First with a QF number rather than a Qantas 380 which is a very poor cousin in my opinion.

All good until you end up in a angle flat middle seat in business on EK's 777 when taking the overnight from Europe to DXB for the onward connection