Qantas (QF, Sydney Kingsford Smith) plans to partner China Eastern Airlines (MU, Shanghai Hongqiao) on Australia-China services, threatened with a veto by the Australian authorities last month, have received a boost after the Department of Infrastructure and Regional Development (DIRD) called for the tie-up to be approved.
Last month, the Australian Competition and Consumer Commission (ACCC) said it had serious concerns about the partnership affecting competition on the Sydney Kingsford Smith-Shanghai Pudong route where together the two airlines would account for more than 80% of the overall seat capacity available. It also said that while the partnership would result in "some limited public benefits" - including Qantas passengers and cargo benefiting from the carrier's planned relocation to China Eastern’s terminal at Shanghai - the overall impact of these advantages would not offset "the significant public detriment likely to result" from the two carriers' partnering on the route.
However, in a letter to the ACCC seen by Australian Aviation News, the DIRD claims the ACCC overstated the tie-up's impact on the Sydney-Shanghai route arguing that the presence of other airlines, such as Cathay Pacific (CX, Hong Kong International), Singapore Airlines (SQ, Singapore Changi), China Southern Airlines (CZ, Guangzhou), and Malaysia Airlines (MH, Kuala Lumpur International) and their one-stop flights between the hubs, would act as a counterbalance to the partnership wherein consumers will generally tend to vote with their wallets.
"While indirect flights only account for around 12 to 15 percent of passenger traffic, it would be reasonable to expect a greater proposition of passengers (particularly more price-sensitive leisure travellers) would elect to travel on indirect services should Qantas and China Eastern increase fare prices under the proposed agreement."
The Department also stated that the ACCC's draft determination was "too narrowly focused on the Sydney-Shanghai route" and did not take into consideration the tie-up's broader benefit to the China-Australia market.
"...The Department sees no reason to deny the proposed coordination agreement. The benefits that will flow to Australia's aviation industry, Australian consumers, the Australian tourism industry, and the Australian economy as a whole are exactly the benefits the Australian Government's aviation policy approach is designed to support."
Announced in November last year, the partnership between Qantas and China Eastern is part of a renewed five-year agreement which would give both carriers increased access to each other's markets.
