Qantas and American Hope Trump’s DOT Will Approve Their Joint Venture on Second Try

Qantas and American Airlines do not plan to make major changes to their application for antitrust immunity when they re-file soon, calculating they failed to receive clearance from the Obama Administration late last year because they fell short in explaining the benefits of their proposal, Qantas CEO Alan Joyce told Skift.

“I don’t think the regulator understood what would be the consequences of not having a partnership,” Joyce said in an interview in Los Angeles. “We think having carriers at both ends working together … can generate huge benefits to the consumer.”

The U.S. Department of Transportation’s decision in November came as a surprise to both airlines, since Australia’s regulators already cleared the deal, which would have permitted Qantas and American to collude on fares and schedules, while sharing revenues. Delta has a similar arrangement with Virgin Australia, but the U.S. government decided the Qantas-American deal was different, as the two carriers control a larger slice of the market. In denying the application, the DOT said the two carriers would control 60 percent of seats between the United States and Australia, creating a “potentially anticompetitive environment.”

To the airlines, the DOT’s argument missed the point. Yes, Qantas has long dominated the Australia-United States market, but American was a new entrant, only launching a flight from Los Angeles to Sydney because it expected to receive antitrust immunity with Qantas. American argued it needed its partnership with Qantas to turn what could have been a marginal route into a money-maker.

American’s decision to add the route set up a domino effect that the two airlines said promoted competition. When American started flying to Sydney, Qantas cut one of its daily Los Angeles-Sydney departures and moved to San Francisco, a market the airline dropped in 2011 because it had not performed well. By restarting the route, Qantas challenged United Airlines, which had previously had a monopoly between San Francisco and Sydney.

Qantas and American also argue the proposed joint venture is a major reason American started another trans-Pacific route, Los Angeles to Auckland, New Zealand. That had also been a monopoly route, flown only by Air New Zealand. Through the joint venture, American can rely on Qantas to carry its passengers onward from Auckland to many destinations in Australia, the two airlines said.

For now, both airlines are expected to keep the routes they launched when they expected antitrust immunity. But if they fail again, they might need to trim some flights, Qantas executives said.

“Today we’re not proposing any immediate changes to our network across the Pacific despite not getting approval the first time through,” said Gareth Evans, Qantas’ CEO for international routes and freight. “What we hope for is …that we will be successful the second time through. If we’re not, then we will review our network and it will depend on the performances of those routes at that point in time. Only time will tell.”

Still, Joyce said he is optimistic the airlines will receive permission, noting that it’s not unusual for regulators to reconsider after carriers re-file.

“Usually the second time around, we are better at communicating it,” he said. “It would be normal practice to go back, if you believe there was a strong case, and you believe there was some miscommunication or some misunderstanding. We think that was the case on this basis.”

Future New Routes

While Qantas is generally pleased with its U.S routes — the airline flies to Los Angeles, San Francisco and Dallas/Fort Worth —  it eventually wants to fly from Australia to the U.S. East Coast.

Those flights are too far for current-generation aircraft, so Qantas’ daily flight from Sydney to New York makes a stop in Los Angeles. Even the Boeing 787-9, a new aircraft Qantas will begin flying late this year, does not have the range to fly farther than Melbourne to Dallas/Fort Worth, at least with a full payload of passengers and cargo, according to Qantas calculations.

Qantas is betting one of two next-generation aircraft from Airbus and Boeing will allow it to finally fly from its hubs to the East Coast. One option is the Airbus A350LR, which Singapore Airlines plans to fly from Singapore to Los Angeles, San Francisco and New York beginning next year. Another is Boeing’s 777X, an aircraft not expected to hit the market until 2020.

“We’re looking at the 777X and the Airbus A350 Ultra Long Range aircraft,” Joyce said. “They have the ability, we think, to be able to do Sydney to New York. They could then open up anything you could imagine — Boston, Chicago, Washington. I think is the way the market is going to develop.”

Either aircraft should also help Qantas open new Europe markets, Joyce said. In March 2018, Qantas will open its first-ever regularly scheduled nonstop to Europe — Perth to London. The airline has high hopes for the route, but it’s not perfect, since Qantas’ operation in Perth is much smaller than in Sydney and Melbourne.

Ideally, the airline wants to fly to Europe from its largest hub in Sydney. Today, many Qantas passengers now stop in Dubai to reach Europe, with most flying from Dubai to Europe on Emirates, a Qantas partner.

“We think [the next generation aircraft] could potentially they could do Sydney to London,” Joyce said. “Which means anywhere in Europe you could easily do, [including] Rome, Frankfurt, [and] Paris, from Sydney and Melbourne. The technology allows us to compete on direct services with one-stop with all the other hub carriers. And that will be a massive strategic advantage for Qantas.”