ACCC approves Qantas-Emirates deal: the experts respond

Emirates CEO Tim Clark (left) and Qantas CEO Alan Joyce pose for photographs. The ACCC today approved for a period of five years an alliance between the two airlines. AAP/Mick Tsikas

The Australian Competition and Consumer Commission today granted conditional approval to an alliance between Qantas Airways Limited and Emirates, a move experts say will benefit Europe-bound passengers but may drive up some ticket prices.

In a statement on its website, the ACCC said the alliance had been granted until March 2018.

“The ACCC considers that the alliance is likely to result in public benefits through enhanced products and service offerings by the airlines, and improved operating efficiency,” ACCC Chairman Rod Sims said.

“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.”

Mr Sims said there may be minimal detrimental effects on competition in most regions where Qantas and Emirates already operate except the trans-Tasman route, “where Qantas and Emirates compete on four routes which accounted for around 65% of total passenger capacity between Australia and New Zealand in the year to 30 June 2012.”

To address fears of rising ticket prices on these routes, the ACCC has said the alliance authorisation is conditional on a promise by Qantas and Emirates to maintain the same capacity on the four overlapping trans-Tasman routes that they had before the deal was struck.

The clause will be reviewed over time, the statement said.

Here are some expert responses to the news:

Tony Webber, Associate Professor, University of Sydney Business School at University of Sydney and formerly chief economist at Qantas

It’s very reasonable that the ACCC gave them the nod. There’s lots of competition between Australia and Europe.

There’s still plenty of competition and seats in the market. There will be some upward pressure on airfares but the passengers should be able to live with that.

Passengers have it pretty good in terms of international airfares for years. Ten years ago, flights to London were up around the $2000 mark and now they are around the $1200 mark. Sometimes the ACCC accepts that passengers may need to pay a bit more. It’s a give and take. It’s time some of the gains went back to the airlines because the international airlines are not making much money.

I think there’s still lots of competition in the Tasman as well.

It’s absolutely a good move for Qantas as a company. One, they weren’t making any money on their Europe services or their Tasman services. One of the ways you can turn around routes is to join up with a competitor and with one of their strongest competitors, which is what they have done.

The Australian carriers need to change their business model when it comes to international services. Airlines don’t make money when they operate on international services so one of the strategies is to let someone else operate the service and build up a relationship with them.

Operating the route Qantas uses their own planes, but marketing the route means you go onto the Qantas site and book a ticket but when you fly it’s on someone else’s plane. That’s what Virgin does a lot of the time. When you are operating you have all these costs to bear. It’s better to let someone else operate it and you feed onto their operations.

Qantas has hooked up with a really good carrier and one of the most profitable in the business.

Emirates flies to 33 places in Europe but Qantas only flew to two. So it’s opened up all of Europe to Qantas’ Australian passengers and the other way round too. It opens up Australia for Europeans as one-stop service rather than a two-stop service.

David Beirman, Senior Lecturer in Tourism at the University of Technology, Sydney

I’ve been following this deal closely. The biggest question mark is who is getting the most out of this deal. From Qantas’ point of view, there’s some benefits – the strong link to Emirates, which flies a lot of people from Dubai to many points in Europe. That is a benefit for Qantas passengers and also in the fact that if you are a Qantas frequent flier and you are taking those Emirates flights too, you accrue points.

My gut feeling is that for the first year it operates it’ll be a howling success because a lot of people who haven’t been through Dubai en-route to Europe will think this is interesting and novel.

What I have questions about is, because Dubai as a stopover point has a limited number of attractions for tourists, frequent travellers – especially business travellers – will say “Oh God, not Dubai again”. When you look at Singapore, Bangkok and other places, terms of tourist attractions they have it all over Dubai. Many of Dubai’s attractions are very artificial.

From the business side, because so many of our trade relations are based in Asia, particularly through China, Singapore and Hong Kong, by Qantas abandoning those points as a stopover, it may be viewed in some circles in Asia that we are dropping the ball on Asia and refocusing on the Middle East. I don’t think that issue has been thought through well at all.

Virgin, the other major Australian carrier has an alliance with Etihad. So our two major carriers now have alliances with Middle East carriers and their long haul routes are bypassing the traditional Southeast Asian stop over points.

The third thing, from the Qantas corporate point of view – and this has been part of the reason, as I understand it, for the friction between former CEO Geoff Dixon and current CEO Alan Joyce – is that Dixon had actually planned to make a very large order of Boeing 787s, the Dreamliner aircraft.

The idea behind that was to make direct runs on Qantas to a lot of places in Europe. The Dreamliner has the capacity to go Sydney-Athens, Sydney-Cairo, Sydney-Rome, and Perth-London.

If the Dixon plan had been followed, there wouldn’t be a need for a Qantas alliance with Emirates at all. But Alan Joyce has opted for the alliance instead.

Qantas seems to be reducing its international routes and giving a lot of that European traffic to Emirates. Emirates comes out of this deal very well.

Had Qantas taken on the Dixon strategy they would have had a lot more options.

But there had been a lot of problems with the Dreamliners so the likelihood of them getting any Dreamliners in the next few years was fairly small.

Because Virgin already has this relationship with Etihad, it may have been more savvy for Qantas to try to build its relationship with other carriers. Malaysia Airlines is a one world carrier and there could have been an option that Kuala Lumpur becomes a major stop over.

Hamza Bendemra, Researcher (Engineering) at the Australian National University

The approval from the ACCC was widely anticipated. However, the verdict from the ACCC showed a couple of interesting points.

The first one was about the routes to NZ. Emirates and Qantas cover 65% of traffic across the Tasman so the ACCC is simply looking preserving competition on those routes.

Secondly, the ACCC also makes the point that although it believes the partnership will be beneficial to both parties, it doesn’t believe the narrative - put forward by Qantas CEO Alan Joyce at multiple occasions - that Qantas International was simply going to die without it (Qantas International has been bleeding money for some time now though).

Finally, the partnership is only approved for five years, as opposed to the 10 years that were asked for. The ACCC is taking the right move by being cautious as this will be the first partnership of its kind. Overall it’s a very smart partnership and it will be interesting to see how it affects both airlines and the market in the next five years.