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ACCC drops opposition to Qantas-China Eastern alliance

08/22/2015| 12:23:17 AM|

The ACCC competition regulator has caved in to pressure dropping its opposition to a deepening of Qantas' alliance with China Eastern, one of Asia's largest airlines.

The competition regulator has caved in to pressure from a wide range of government, tourism and transport bodies, dropping its opposition to a deepening of Qantas' alliance with China Eastern, one of Asia's largest airlines.

A day after Qantas posted its largest profit since 2008, the Australian Competition and Consumer Commission said it had "decided on balance" to grant approval for five years to the two airlines' extending their tie up on routes between Australia and China.

The ACCC has imposed conditions on the airlines that require them to boost capacity on routes between Australia and China by 21 per cent over the next five years, and report their monthly average fares. 

The competition watchdog signalled in March that it would block the alliance because of concerns it would give the two airlines more than 80 per cent of the direct capacity between Sydney and Shanghai.

However, ACCC chairman Rod Sims said on Friday that the airlines' plans to add a significant number of new services, and an expanded range of destinations, would be a "significant public benefit".

China Eastern has proposed to open a new route to Australia and increase the frequency of flights between Shanghai and Sydney, Melbourne and Cairns during peak periods over the next two years. Together, the two airlines have said they will significantly expand the range of destinations covered by their existing code-share deal.

Mr Sims said the regulator had imposed conditions requiring the two airlines to boost their capacity between Australia and China Eastern's hub in Shanghai by 21 per cent over the five-year term of their approval. 

"This will ensure that coordination between Qantas and China Eastern does not result in a reduction in the frequency of services provided below that which could be expected if the alliance was not in place and they continued to compete strongly with each other for passengers," he said.  

The regulator will also require Qantas and China Eastern to report their average fares, month by month, on each route between Australia and China on which they fly.

The ACCC has been under considerable pressure from government, tourism and transport bodies to drop its opposition to the deeper alliance.

The Chinese government flexed its lobbying muscle several months ago when its ambassador to Australia wrote to the ACCC to voice his "concern about the ongoing review" of the deal.

Qantas also hit out at the regulator in May for failing to "appreciate the degree of competitive constraints" on it and China Eastern from other airlines such as Cathay Pacific and Singapore Airlines. 

The Australian airline's argument has been that price competition on the Sydney-Shanghai route is intense and will not change as a result of its proposed alliance. 

Qantas chief executive Alan Joyce said on Friday that the two airlines had put a "strong case" to the ACCC that outlined the benefits of the deeper tie up to travellers and the tourism industry.

"The joint venture with China Eastern allows us to increase capacity between the two countries by linking to key hubs and offer connectivity to each carrier's behind and beyond networks," he said.

Shares in Qantas rose 3¢ to $3.56 on Friday morning in the wake of the ACCC's final decision, helping the stock to recoup some of the losses from a 6 per cent fall a day earlier.

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TAGS: Qantas | China Eastern Airlines | Australia | China
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