MIAMI — Earlier today, the US Department of Transportation issued a show cause order, revoking the previously granted anti-trust immunity (ATI) and joint venture (JV) on routes between the United States and Australia/New Zealand for Qantas and American Airlines.
The two airlines, both members of the oneworld Alliance, had been previously granted a joint venture with antitrust immunity in 2011, when American had no routes to the South Pacific. However, under the DOT’s rules for such joint business agreements, the agreement is required to undergo a periodic renewal process.
To date, these renewals have mainly been formalities, but with this decision, the DOT for the first time has revoked a previously granted ATI/JV. The rejection of this ATI comes after the DOT just approved JVs for Delta – Aeromexico with specific carveouts, and United – Air New Zealand in a market where the concentration of the home carrier (Air New Zealand) is larger than in the Australian case. And it potentially throws upcoming JV approval processes, such as that for the proposed American Airlines – LATAM JV, into complete chaos.
DOT acted based on Qantas’ dominance of the market
The DOT’s primary objection to the ATI was centered on the strong position that Qantas already enjoys in the US – Australia market. As the DOJ noted, Qantas already is the largest carrier on 70% of US – Australia city pairs (by origin and destination [O&D] traffic) and offers 53% of the available seats in the market. It’s overall share of US-Australia. O&D traffic is a bit lower, at 41%, but the O&D figures of course include carriers from third countries such as Cathay Pacific and Fiji Airways connecting passengers to the US.
However these numbers are actually down slightly since 2011 when the original JV was approved. What has changed since then is American announcing new daily flights from its Trans-Pacific hub at Los Angeles to Sydney (daily with a Boeing 777-300ER) and Auckland (daily with a Boeing 787-8). This has taken the combined carrier’s share of seats on offer from 56% (all Qantas) in July 2015 to a whopping…. 59% (with American representing 6%) in July of 2016. Qantas 56% translated into 41% of the O&D market so applying the same ratio today would result in the combined carrier controlling about 43.2% of the combined US-Australia market and American representing ~4.4% of the 43.2%.
These arguments don’t hold muster with DOT precedent
The problem with the DOT’s rationale is that it has explicitly approved JVs with similarly sized, or even much larger market concentration figures such as the previously mentioned Air New Zealand – United and even the American Airlines – International Airlines Group (IAG) JV to London Heathrow. The American – IAG JV still controls nearly 60% of the Heathrow – Us market, yet the DOT has only singled out this particular agreement.
Given the political winds and a DOT at the tail end of its time (before President-Elect Trump appoints new head officials), it would not be 100% surprising if this were driven by more than just concerns of mere competition.
This could actually reduce capacity and harm competition
At present Qantas has 43 flights per week between the United States and Australia, all on Boeing 747-400 and Airbus A380-800 aircraft, serving Los Angeles, Honolulu, Dallas Fort Worth, and San Francisco. It also has a daily flight between Los Angeles and New York as a continuation of its LA routes. Melbourne, Brisbane, and Sydney are all served from Los Angeles, while the other destinations exclusively see flights to Sydney. Qantas also serves Sydney – Vancouver seasonally.
The following tables from Airways’ R outline the routes served by airline between the US and Australia as well as the market share by alliance.
The tables reiterate the DOT’s conclusion that QF/oneworld are the largest players in this market, but also illustrate that there still is plenty of competition in the market.