Flexible conditions for Qantas/Emirates alliance

Australia’s competition watchdog approved the Qantas-Emirates alliance today, to the surprise of nobody. The ACCC had already flagged that approval was likely in a draft decision. However, there were some interesting nuggets buried in the 160-page final decision.

One such nugget was the discussion over capacity requirements that the ACCC is imposing on Australia-New Zealand routes, where both Qantas and Emirates are major players. These routes were the major concern of the ACCC, because the two airlines have overlapping service, and they could potentially reduce capacity in the market.

The ACCC had already proposed a condition that Emirates and Qantas cannot reduce overall capacity across the four Australia-New Zealand routes where they overlap. While the regulator has not required capacity growth, it will review the routes in 2015 to see if growth requirements should be imposed.

The airlines had argued that the capacity commitments should apply to all of their flights in this market, so they could reallocate some capacity to new routes between the two countries. Some airports had also expressed concern that the condition might limit new route development.

In its final decision, the ACCC has stuck with the capacity condition for the four overlap routes. However, it has also given a pretty broad hint that it will grant relief from the capacity rules under certain conditions – which could include the launch of new routes.

Here’s what the ACCC says in paragraph 655 of its ruling:

The ACCC considers that the proposed conditions contain sufficient opportunity for appropriate variations to be made where new trans-Tasman services are contemplated by the applicants. The ACCC has not designed the conditions to restrict efficient entry or expansion on trans-Tasman routes by the applicants (or any other carrier). Take, for example, circumstances where the applicants are considering introducing new trans-Tasman services that require the diversion of capacity currently operating on one or more of the four overlap routes. Such an example may constitute a ‘material change in market conditions’, meaning that the applicants can apply to reduce their capacity on the overlap routes to facilitate the introduction of the new service.

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