Qantas & American Airlines, another step closer to partnership and Chicago

The USA Department of Transport has given its tentative approval for this joint venture for flights between Australia and New Zealand and the USA.

This is not the first time the two airlines have applied for such an arrangement.

Why a Joint-Venture?

A joint-venture between airlines is the highest form of a commercial relationship. Like a capitalist marriage in the airline industry. It means they share profits and marketing, and codeshare flights. It’s like treating one partner like to treat yourself – in fact, closer than a lot of marriages!

It’s so close, that it can be regarded as anti-competitive, and that’s why it needs regulatory approval. I can see the anti-competitive part, but I’m not sure I can see the advantage part for the flying public.

How is this of advantage to the flying public ?

So what are they arguing this time that would benefit passengers, to hide the fact that this is one more step towards restrictive trade practices, that will inevitably see prices rise, and less competition on the routes?

Qantas argues 5 things:

• Chance to launch new routes to city pairs not currently served
• optimised schedules on trans-Pacific services, providing the possibility of more connections to more destinations and reduced travel time
• Better access to seats on each carrier’s network, leading to lower fares (sure! Ed)
• Additional frequent flyer benefits including higher earn rates for points on each other’s networks, and increased redemption opportunities and improved recognition for top-tier frequent flyers
• Co-location at airports, more investments in lounges, etc to better serve customers.

The airlines are quantifying the above points as benefiting passengers to the tune of $400 million a year.

Advantages for Qantas and American Airlines

What the agreement will give American and Qantas is the ability to share revenue and marketing costs on these trans-pacific routes – so that means they reduce risk (costs), and to me that says they can raise prices. Nes’t pa?

It’s that reduced cost, and reduced risk, and what I regard as the inevitable rise in prices that will allow them to open new routes. The new routes they have specified are two out of Brisbane, one to San Francisco, and the other to Chicago. In fact, they have announced Chicago as their first new route if the agreement is given full approval – which could come as soon as in a few weeks.

History

This process started way back in 2015, and has been rejected before. Initially, the ACCC (Australian Competition and Consumer Commission) said ‘OK’ but the US Department of Transport said ‘No’ on the grounds it would give these two players too much market power (they have 60% of the traffic on these routes already).

And the two airlines aren’t playing nice about possible rejection – they are threatening that they would have to reduce services if the deal is not approved (have you tried to get a cheap seat on this route in the last couple of years, let alone a premium points seat?) If these two behemoths can’t make money out of the route, then there is a level of incompetence we should not be supporting.

2PAXfly Takeout

In the short term, this could be a good thing. We might see an initial drop in pricing – although probably more for Economy than premium seats. We may even see an increase in frequency. Schedules will be aligned, there may be some fine tuning so their products are comparable, and we could get that nice direct flight from Brisbane to Chicago.

Some commentators have felt that Qantas and American have deliberately scaled back their trans-Atlantic services to support the improvements promised in this joint venture.

In the longer term, I’m not so sure. These partnership are by their very nature anti-competitive and that does not benefit consumers in the longer term.