It seems fair to suggest that the ACCC conditional authorisation of the Qantas-Emirates deal contains some observations that could cause Qantas grief in the future.
The decision rejects the arguments Qantas made that the long haul business was in ‘terminal decline’ or ‘failing’ or that the Emirates alliance was essential for its survival.
“The ACCC has assessed the public benefits and detriments of the alliance on the basis that the scope of Qantas’ international operations in the likely future without the alliance is not materially different to the likely future with the alliance. In particular, the ACCC does not accept or rely on the claim that Qantas International is in “terminal decline” and unable to compete effectively or operate profitably absent the alliance,” Mr Sims said.
It also reaffirms the ACCC’s initial view that while it offers some net benefits to consumers they aren’t exceptional.
“In particular, the alliance is likely to provide Qantas and Emirates customers with increased access to a large number of existing frequencies and destinations under a single airline code, improved connectivity and scheduling, and access to each alliance partner’s frequent flyer programs. The alliance is also likely to provide the airlines with increased flexibility to manage their fleet.”
“Taking all of this together, the ACCC is satisfied that the alliance is likely to result in material, but not substantial, public benefits.” Emphasis added.
But this is a deal which means that from Sunday Australians who used to choose Qantas to fly to London from Brisbane, Adelaide and Perth by changing between Qantas flights at Singapore’s Changi Airport are now being ‘expected’ to fly Emirates all the way.
This is a huge giveaway by Qantas, and may be seen as a slap in the face for loyal customers not readily served by the remaining Qantas flights to London via Dubai from Sydney or Melbourne, which will both have a daily QF A380 each way.
As the ACCC has noted on several occasions since the deal was proposed, there are amply competitive alternatives to Qantas and Emirates on the routes to London and Europe, and, to summarise, it is a competition authority, not a Qantas preservation agency.
Those familiar with ACCC determinations down the years, and well before the appointment of the current chairman Rod Sims, will know that it was not set up to prevent companies doing silly things, but to ensure that whatever they do there is no material injury to competitive benefit to the Australian economy.
Which raises the expectations of Qantas from the Emirates partnership, in that they obviously expect that existing Qantas customers will dutifully accept flying in Emirates jets. As in Qantas, We are the reason you fly Emirates.
The fact is that Emirates has already won very strong customer loyalty in Australia, and in its A380s, has product that makes the Qantas A380 alternative look unexceptional. The Emirates 777s are another matter, being great aircraft rather tightly configured, although Emirates may revise those configurations and has already let slip that it will improve its 777 business class offering.
The risk is that those Qantas customers that haven’t already defected to Emirates are probably not going to revisit their choices once Qantas dumps them if they fly to Europe from Brisbane, Perth or Adelaide, but will take their business somewhere else, such as to Singapore Airlines, Etihad or Cathay Pacific.
Those Qantas customers that are exposed to an Emirates A380 may well choose Emirates over Qantas in the future, given that both frequent flyer programs are very good, and have good crossovers. Those Qantas customers who change flights to an Emirates service to say, Manchester or Hamburg, in Dubai, would have an incentive to choose to fly all the way on Emirates the next time, since it will be more convenient to do so in most circumstances.
These risks or considerations are reason to query just where the Qantas-Emirates partnership will take Qantas, but as the ACCC determination makes clear, these were not matters it had to consider under its charter.
It is there to make sure Australians enjoy competitive choice. It isn’t there to stop Qantas imploding on routes to the UK and Europe.
QAN Price at posting:
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