American and Qantas Try to Hook Up Again, Warn of Doom and Gloom If Shot Down

American, Government Regulation, Qantas

Back in 2015, American and Qantas tried to gain US government approval to expand a joint venture to include anti-trust immunity for flights between the US and Australia/New Zealand. This seemed like a fairly standard request at the time, but the Department of Transportation (DOT) surprisingly shot it down. Now, the airlines are trying again, armed with more data showing the public benefits of joint ventures. (There is a study in the appendix of the application that is a worthwhile read.) The application itself is long-winded and sounds, at times, like a teenage girl threatening that the world will end if she can’t go out with her friends this weekend. The thing is, they may not be that far off.

If you have the time, the application is actually an interesting read. You can tell American and Qantas have put a great deal of effort into mounting one last attempt to get this pushed through. Though with a new administration in place, I’m not quite sure why they didn’t just do this the easy way…

The basics of this application are mostly the same as the old one with one significant change:

Qantas has interline relationships with United, Air Canada, Hawaiian, Alaska Airlines, WestJet, Fiji Airways and Air Tahiti Nui. These relationships will continue and can even expand, as the Parties have amended the Proposed JBA to remove the exclusivity provisions that were present when the Parties originally applied for ATI in 2015.

Of course, this doesn’t require that Qantas keep those relationships, but it’s still a nice concession. The arguments showing the benefits of the joint venture are compelling, particularly since American effectively didn’t serve the Australia/New Zealand market at all until recently. When American did start, that service was predicated on a joint venture helping to support it. So I don’t see this particular effort as a way of reducing competition. I see it as a way of giving American a way to actually serve the market on its own without bleeding a ton of red ink. Without this, it’s hard to see how American can become a long-term competitor in the market. (Then again, American does like to lose money on Transpacific flights from LA….)

What makes this market so hard for American? Australia and New Zealand are uniquely challenging for airlines in the US. Though Americans travel there in the peak northern winter, the rest of the year sees upward of 70 percent of traffic originating down under. That’s opposite the usual pattern, and it requires having a strong point-of-sale in those countries. It explains why airlines in the US have scrambled to find good partners down there while at the same time using smaller airplanes when possible.

Delta’s flight from to LA to Sydney would be a bloodbath without the connections and local sales presence it gets from its joint venture with Virgin Australia. United benefits tremendously from its joint venture with Air New Zealand even though that only covers New Zealand and not Australia. (United has a bit of an advantage in that it’s far more established in the region than any other US player thanks to longevity.) And American, well, without a joint venture, it’s hard for American to justify serving the market at all. We already got a glimpse of that when the original deal was turned down.

Soon after the DOT shot American and Qantas down last time, American’s Auckland flight was cut back to only operate during the peak northern winter when there are Americans looking to travel to New Zealand. And the Sydney flight was downgauged from a 777-300ER to a 787-9. Despite those changes to shore up the business, the filing notes that “American’s Los Angeles to Sydney service has consistently been unprofitable.”

American and Qantas also cut back codesharing and mileage earning when this was denied the first time around. Some say this was done out of spite, but really, it’s because without a joint venture, each airline has the incentive to keep people on its own airplanes instead of those of a competitor. That’s why American doesn’t codeshare on the LA – Sydney flight on Qantas any more. It wants to keep those people on American’s airplane to give it half a chance of staying afloat.

American and Qantas built their service patterns based on the idea that they’d be able to work together closely. Would American have ever been able to start Sydney without Qantas? Probably not. And would Qantas have ever been able to fly an A380 to DFW without American? Nope. Without a joint venture, these start to die on the vine.

In the application, American notes that 24 percent of the people on its LA – Sydney flight connect beyond Sydney. That means Qantas has a lot of leverage over the viability of that already-money-losing flight. If these airlines are competing, then wouldn’t Qantas prefer to pull that plug and try to get American out of the Sydney market altogether? At the same time, that Sydney – DFW flight on Qantas relies heavily on American’s feed in the US. Wouldn’t American rather route those passengers over LA on to its own flight and hope that the Qantas flight dies (or at the very least gets downgauged to a 787)? It sure would.

The filing makes it sound ominous. It says that without a joint venture, “Qantas will have significantly less incentive to allow American to codeshare.” And “without Qantas support, [American’s Sydney] flight becomes economically unsustainable.” Those are somewhat theoretical, but it’s far more concrete on the reverse.

When it comes to Qantas codesharing on domestic American flights, without the joint venture things get ugly quickly.

American plans to eliminate codesharing on all 53 destinations from Los Angeles and all 8 destinations from San Francisco. American will remove over half of the codeshare connections from Dallas (37 of 64). The choice of codeshare cuts is limited to where American can flow the affected passengers over LAX and onto its own LAX-SYD service.

Some may say that with no joint venture today, these ties should have already been cut. What gives? You have to remember that American and Qantas have been hoping that they can finally get this thing approved. They cut back just enough to show that there was a real negative impact, but they didn’t cut back as far as they would have if they had given up completely. They want to try to some extent to keep the existing service viable, so that it’ll be much easier to ramp up the joint venture when approved. That means they have to think in the long term. But if that hope is dead, then it’s time to cut back even further.

Then it becomes a race to see who fails first. If American blinks and cancels its Sydney flight (or makes it seasonal), then maybe it will decide to keep codesharing on Qantas since it would otherwise have no presence in the market. Qantas may also decide to pull its DFW flight. Either way, the end result will be fewer options for travelers. Not all joint ventures have as clear of a benefit as this one, so it’s particularly perplexing why this was singled out for denial. On any rational basis, it shouldn’t have been. Let’s see if DOT gets it right this time.

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42 comments on “American and Qantas Try to Hook Up Again, Warn of Doom and Gloom If Shot Down

  1. “And would Qantas have ever been able to fly an A380 to DFW without American? Nope.”

    That’s different than saying they wouldn’t have been able to fly an A380 to DFW without a JV. They started flying an A380 six days a week before the original JV request was filed. There’s some codesharing without the JV. And there’s an alliance partnership entirely independent of codesharing (and how often do you tell clients to take codeshares versus the natural flight number?). Moreover Qantas flew a 747 (with a refueling stop in Brisbane one direction) to DFW before the A380. The JV application literally claims that QF would not fly to DFW without an approved JV, which is overly dramatic.

    There are lots of whoppers in the filing. They attribute their Chicago Flagship lounge to anticipation of the QF JV. They attribute Flagship Dining to their JVs even though none of their JV partner passengers get access to Flagship Dining. They even attribute reduced AAdvantage redemptions on Qantas to the lack of a JV (which is very much not the reason).

    The JV should probably be approved based on DOT precedent, but the filing itself is an exercise in straining credulity.

    1. Gary – You aren’t thinking about this from the long term perspective, and you’re also stretching the truth on some of these claims.

      Qantas and American first signed a joint business agreement in 2011, and that’s when the DFW flight launched. They couldn’t get a full joint venture because at the time American didn’t fly its own airplanes to Australia and had no possibility to do so (didn’t have the right airplanes nor the right pilot contract) in the near future. So they put together what they could at the time with the assumption that once American had the plans and the pilot deal, it would fly its own airplanes and they’d get a proper joint business with antitrust immunity. The DFW flight only exists because of the preliminary joint business with a long term focus on the future.

      **”They attribute their Chicago Flagship lounge to anticipation of the QF JV.”

      What it actually says is “American has launched a new shared Admirals Club and Flagship Lounges in JFK, LAX, and ORD in the context of its transatlantic and transpacific joint businesses. ” Which is different than saying the Qantas joint venture is the reason for the lounge in Chicago.

      **”They attribute Flagship Dining to their JVs even though none of their JV partner passengers get access to Flagship Dining.”

      Again, what they actually said was “American has worked with its transatlantic and transpacific joint business partners to develop and subsequently roll out the new American Flagship Dining concept, now available across the United States in American’s new Flagship Lounges.” That is true, and from what I understand it’s the service standards on joint venture partners like Qantas that pushed American to offer a similar product so that travelers in the joint venture would have similar experiences.

      All of this should be irrelevant anyway, and I’m not sure why they decided to bother including this kind of fluff. But it’s not nearly as nefarious as you make it sound.

      Edited to put “not” in the last sentence.

      1. Too bad for any of these rules, because it encourages irrelevant information, credulity straining, and nefariousness when discussing, even between two smart, well-meaning individuals, Cranky and Gary!

      2. I was being a bit flip in my comments but the point remains the DOT process causes them to take a kitchen sink approach and include a lot of questionable material — including the Chicago Flagship lounge and the Flagship First Dining in an application in support of their Qantas joint venture is an incredible stretch that even they had to question at some point as they put this together.

        Blaming the reduction on Qantas award redemptions by AAdvantage members on the JV application falling apart (mechanism: AAdvantage awarded fewer miles to its members flying on Qantas) is silly. The bigger issues are (1) Qantas award availability, (2) AA.com glitches showing phantom availability and failing to show actual availability, and (3) changes in the number of miles AA awards overall through their revenue-based program and the increased cost of many of their awards.

        As for Qantas at DFW yes there was a more limited JV in place before that was given up. But that makes my point that the counterfactual doesn’t have to be “this JV or no cooperation.” There’s the old JV. There’s codesharing outside the JV. There’s partnership through the alliance. Claiming that Qantas would not serve DFW at all is a stretch vs. saying they might offer fewer seats than a daily A380.

        I believe that under DOT precedent the JV should have been approved before, and ought to be approved now. I’m suggesting that the DOT standards and process lead airlines to make a bunch of exaggerated claims that are at least reasonably unlikely to be true. I don’t really blame AA for that.

        1. Gary – Agreed that they everything and anything in there that could tangentially be considered connected. I don’t know if that’s considered good practice or not for something like this. I mostly just consider it irrelevant but then again, I don’t need to be convinced.

          As for going back to the old JV, sure, they can do that and it would make sense to do so if American had no interest in serving Australia with its own airplanes. Cancel the flight and go back to that deal. Qantas would then likely pull back on SFO (depending upon aircraft availability) and move a flight down to LA. And for DFW, I assume that’s bound to become a 787 at best. If American wants to keep its own flight, then the old JV doesn’t make much sense. Without anti-trust immunity, it’s quite difficult to make that work with both airlines looking to fly the route.

  2. Threatening to cut service if the JV is not approved has not ever worked before and won’t work this time.
    AA and QF both have codeshare partnerships without JVs. There is no reason why their relationship can’t work on a codeshare/alliance basis.
    The reason why any JV deal with QF is problematic is because of QF’s size and share of the US-Australia market and its fare premium in it. As long as that remains, it is highly unlikely that any US government is going to approve a transaction that increases QF’s market dominance.
    The very same principles have been used for other carriers and in other markets. They are DOT and DOJ governed and are not specific to American or Qantas.

    1. Tim – But this is a different scenario in that in other JVs, there is viable service from both partners. In this one, American’s service is already hanging on by a thread. Without a joint business, American is going to do everything it can to keep people on its flight to Sydney or that flight will be under even more pressure.

      Regarding Qantas’s size and share, they address that on page 10 of the application.
      http://s21.q4cdn.com/616071541/files/doc_downloads/newsroom/Press_Release/2018/02/2018-02-26-FINAL-AA-QF-Application.pdf

      It’s not as high as you might think. And of course, American adds very little capacity anyway, so the change in share isn’t all that much. It’s even worse if American finds itself giving up and pulling out (or going seasonal) without a joint venture. (Whether American does or not is unclear, but it absolutely should because it bleeds on that market.)

      1. I agree with your points but that is all the more reason why a JV that is heavily tilted to QF is dangerous to consumers given that they already get the highest fares. AA is simply adding a little more capacity that QF can use to increase its dominance and that is why the government will object.
        The latest DOT data shows that AA and DL carry nearly the same number of passengers between the US and Australia on their own metal. AA gets a slightly higher average fare but they also use a 777-300ER with a first class cabin and have higher fares related to QF (AA and DL do mirror fares of their partners even if AA can’t price jointly with QF). DL’s 777-200LR does not have a first class cabin and also has about a dozen fewer seats. DL’s costs are probably a little bit lower.
        It is hard to understand how AA can’t make it in the market but Delta can given that information. You have to ask why AA or QF wouldn’t codeshare with each other if they don’t have a JV given that both of them depend on it.

        1. Tim – That data isn’t all that helpful since American has since downgauged to a 787-9 without a First Class cabin. Where are you getting fare data?

          1. Average fare information is available from multiple sources… and you can confirm boarding data from LAX as well as the DOT.
            The exact numbers are probably less important than the fact that AA and DL have pretty similar performance to SYD. Yes, AA downgraded to the 787 which should cut costs significantly and a few seats but AA, DL and UA are far closer together in performance from LAX than AA is to QF.

            The issue remains that QF is simply too large to have a JV with any US carrier given that the US-OS market is so heavily concentrated at LAX.

            Further the application is more of a plead to let AA and QF have a JV because if they don’t get one, their ability to cooperate will fail. Even though they repeatedly say that their level of cooperation will fall without a JV, they never say why – or I didn’t find it. There is no reason why AA and QF can’t cooperate as non-aligned partners; they have done that for years with TAM.

            Further, AA’s chart about the growth of capacity between DFW and LHR is rather damning and highlights why there is resistance to an AA-QF JV. In the DFW-LHR market, AA says after the JV, DFW-Europe capacity on AA grew by 50% while capacity for other carriers outside of the JV to Europe fell. How is that supposed to be a consumer-benefitting argument for a JV.

            While AA talks a lot about SYD, the more vulnerable route is likely AKL even on a seasonal basis.

            1. Tim – Boarding data is easy. Fare data for international flights is a whole different story. Unless you think American is straight-up lying, then we know the route is losing money consistently. As for Delta, that’s not the same since the joint venture with Virgin Australia exists. Need to look at all those flights as package.

              The difference between American/Qantas and American/LATAM is that American and LATAM both have successful operations between the US and South America. In fact, if there’s one that should be denied, I’d think it should be that one. (It’s still on hold since Brazil has yet to actually ratify open skies anyway, from what I understand.) But American doesn’t have a successful franchise between the US and Australia. Without Qantas, it’s hard to see how that would become successful. Why would Qantas want to help support the American flight if it has its own flights to support?
              Sure, it would like the codeshare beyond LA/DFW to help fill its own Transpacific flights, but American will be less willing to feed that traffic if it can put it on its own airplane instead. That’s how I view it.

            2. interesting take… I wouldn’t assume that American is unprofitable to SYD. Their 773ER configuration adds costs with few additional revenues but that is another story and I’m not sure that is what makes or breaks AA in the market. I am curious as to how you come to the conclusion that AA is losing money.
              Your point about QF not wanting to support AA might very well be valid. I’m not sure why QF would want to share revenue with AA if they aren’t willing to maintain a simple codeshare. If QF’s route to DFW is dependent on AA – and clearly it is – why would they think about cancelling the codeshare just because they can’t have a JV?
              QF, IIRC and my memory may be foggy, cancelled SFO service in order to focus on DFW. Why would they throw out their DFW service and cut their presence in the US because they can’t get a JV?
              Brazil/US is not nearly as concentrated in one market as LAX-SYD is… that is the reason why QF won’t work for anyone. And it is very likely that there will be a carveout on MIA-Brazil when a JV is implemented, and I am betting one will happen.

              It is easy to do a carveout when one route is the problem and there are plenty of competitive markets that challenge that market.

              That dynamic doesn’t exist to Australia.

              and I think the bigger issue is AA’s international presence in LAX which is dependent on alliances which aren’t turning out quite the way AA expected.

              again, thanks for the article and the good discussion.

            3. Tim – I’ll answer inline…

              > I wouldn’t assume that American is unprofitable to SYD.
              > Their 773ER configuration adds costs with few additional revenues
              > but that is another story and I’m not sure that is what makes or breaks
              > AA in the market. I am curious as to how you come to the conclusion
              > that AA is losing money.

              I’m taking AA’s word for it. From page 58 of the filing:
              “Even with limited Qantas support, American’s Los Angeles to Sydney service has consistently been unprofitable. Without Qantas support, this flight becomes economically unsustainable.”

              DOT has access to international fare data that isn’t made available to the public, so I would think this would be verifiable, and American would be making a huge mistake if the airline was lying about this.

              > I’m not sure why QF would want to share revenue with AA if they
              > aren’t willing to maintain a simple codeshare. If QF’s route to DFW
              > is dependent on AA – and clearly it is – why would they think about
              > cancelling the codeshare just because they can’t have a JV?

              It wouldn’t be Qantas that cancels it; it’ll be American. Under a JV, American is fine sending people from, say, Chicago, Dallas, New York, Washington, etc over DFW to get on that Qantas flight. But without a JV, American is going to want to force those people via LAX to fly on American’s own flight. That’ll leave the Baton Rouges and other mid-tier markets without service to LA that will still be on the codeshare, because American wouldn’t be competitive on its own with two stops (when United can send over Houston now). And that’s exactly what American says in the filing. Qantas would definitely not want to cancel this piece, but it may want to cancel the codeshare in Australia so it can force passengers on its own flights from LA past Sydney.

              > QF, IIRC and my memory may be foggy, cancelled SFO service in
              > order to focus on DFW. Why would they throw out their DFW service
              > and cut their presence in the US because they can’t get a JV?

              I don’t recall that either, but you may be right. I know that SFO only came back when the 2015 joint venture was announced. But why would they cut DFW if they can’t get a JV? If American won’t support the flight enough, then Qantas may have to rethink its viability.

            4. thanks for posting the quote about profitability of AAs SYD flight… this discussion is interesting because you find those gems.

              If AA can’t serve the BTR-OS market without a JV, then they lose to UA who can via IAH. It isn’t a surprise that UA added their IAH-SYD route to force AA-QF to come to a decision about their relationship.

              I would bet that AA-QF will figure out how to cooperate without a JV. They can’t cede markets to others even if the economics are not as good; codeshare relationships can work financially.

            5. Re: “I would bet that AA-QF will figure out how to cooperate without a JV.” Agreed. If the JV is denied, AA will exit the market and codeshare extensively with QF. But that outcome doesn’t in any way alleviate your concerns about QF’s size within the market.

            6. Patrick – If American is smart, that is what it would do. The Sydney flight isn’t sustainable without the joint venture. But it’s hard to know what American will actually do since it has an irrational love of LAX that gives it visions of grandeur. I agree it would be better off just walking away and reverting to codesharing, but as you say, that doesn’t help competition in any way.

            7. If American just walks away from its own flight, QF would have a smaller presence than if it were able to have a joint venture with American. If anything, QF would have no JV partner and might be weaker in N. America compared to DL and UA which have joint ventures.
              The root of the case is that AA is trying to make the argument that AA and QF should be allowed to have a joint venture because AA’s own operations in the S. Pacific aren’t profitable. That is simply not a valid justification for a joint venture from the government’s standpoint.

  3. Thankyou for covering trans-Pacific business, and how the market is changing. Seems there’s more competition than ever, and this JV getting approved would add flames to the fire. AKA good news for price-conscious travellers.

  4. What you don’t describe to the layman is the difference between an interline agreement and a codeshare and and a joint venture.

    Guess it depends on your line of thinking but I see JV’s as losing a competitor in the marketplace. Of course AA & QF don’t codeshare on routes they both operate today but you let a JV go through and where is the incentive for them both to operate that route? The available seats shrink.

    I don’t see how the codeshare between AA & QF is not profitable in itself. This JV request seems to me like a stretch and not of any benefit to the average customer in the US or Australia.

    1. A – Sure, happy to do it. I wrote about codesharing vs interlining previously (http://crankyflier.com/2011/07/14/codesharing-provides-no-benefit-to-the-traveler/), so you can read that to get started. A joint venture is effectively a merger without merging. They both share at least revenues and often costs so that they become “metal neutral” – that means they don’t care if a passenger flies on a Qantas airplane or an American airplane because they make the same amount of money either way.

      In a normal joint venture, you assume there are two airlines with sustainable service in a market, but this one is different. American is bleeding badly, and while it can continue doing so, without a joint venture there’s little to no chance of that changing to black ink anytime soon. So there is a real threat of American walking away from the service. Now, why wouldn’t they do that under a joint venture? First, they can’t. American and Qantas tried to build a joint venture in 2011, but the DOT wouldn’t approve it without both airlines having flights in the market.

      But more importantly, American’s flight now becomes just like a Qantas flight. They can sell together, schedule together, price together. That’s why when American started the Sydney flight, Qantas moved one of its LA flights up to San Francisco. It allowed Qantas to keep the frequency it wanted in LA, but then it could move one of its own airplanes up to San Francisco.

      I would suggest reading that study in the appendix as well. It shows some of the benefits of joint ventures. Pretty interesting read.

      1. I wonder how the planned Melbourne flight out of SFO messes with this? American does not have strong presence at SFO…United does. Doesn’t this dissipation to a route that American doesn’t support that much…certainly not as a weighstation to the Pacific ala United…hurt the joint venture argument?

        1. What the joint venture does is free up QF aircraft for other missions. If a JV means that AA can viable operate an LAX-MEL route, then that frees up a QF aircraft to fly MEL-SFO. As Cranky noted, this is how QF was able to start SYD-SFO; the aircraft operating that flight used to operate to LAX, and that flight was replaced by AA’s flight.

          1. Yes, except QF is launching service without any AA LAX-MEL route in place so I don’t see how the JV freeing up a plane argument applies here…unless QF is just being hopeful and planning ahead. But I doubt that is so.

        2. Doug – Well, Qantas is still running its business to match demand, and that’s an important market. Qantas never had the airplane for it before, but with the 787, it can run that now. It’s still only 4 days a week, I think, so it’s really just a market that Qantas wants to fly regardless of American. I don’t think that hurts the joint venture agreement at all, because there are still American loyalists in the Bay Area who would find this flight useful. That can only strengthen the flight’s potential viability. There are also some connections that can flow via SFO, but that may be more the domain of Alaska as a Qantas partner.

      2. It’s important to emphasize that it’s metal neutral from the airlines’ point of view, but not from the passengers’ point of view. Though AA has done considerable work with joint venture partners to bring their products to parity (including going fully-flat bed in business class on trans-Atlantic flights, as a condition of the AA/BA/IB/AY joint venture), there are very real differences between AA-operated flights and flights operated by joint venture partners.

        1. Alex – Very true, although it’s way better than it used to be. American even had to do better on catering for Qantas to agree, so they do try to synchronize when they can. Back in the old days of the American/BA joint venture, it was particularly terrible where things were really, really different. Now American has really leapfrogged BA, but at least you get a flat bed no matter what.

  5. Didn’t AA and QF have anti-trust immunity (and maybe a more limited joint venture; can’t remember the details) that were approved when AA had neither an aircraft nor a pilot agreement that would even allow them to fly to Australia? My recollection was that it was under that not-arm’s length cooperation that QF moved the SFO flight to DFW.

    1. Alex – No anti-trust immunity, but yes, they had a more limited arrangement back in 2011. It’s because American didn’t have its own airplane in the market that they couldn’t get a full joint venture approved. But you’re right, they did coordinate somehow on those schedule changes in anticipation of a full joint venture.

  6. How likely do you think it is that AA/QF would accept a JV with some caveats imposed by the DOT? Just thinking out loud, but the DL/KE JV came with a clause barring partner exclusivity and the DL/AM JV came with a mandatatory review every few years and slot restrictions (the latter not necessarily applicable in this case).

    1. Itami – I have no idea, but these aren’t slot-restricted airports, so I don’t imagine there would be anything to give up.

  7. Cranky, thanks for your thoughtful and informative posts. You always do a great job providing context here that we can’t find anywhere else. I appreciate your work and look forward to your posts every week.

    With that said, I would like to point out that the reason the AA/QF JV was denied the first time was it would give them control over roughly 70% of the market or something crazy like that. That’s tremendous pricing power between two airlines that the others will struggle to match. I truly wish AA and QF the best, but this deal would not be good for consumers as it would negatively impact competition. USA-Australia is a market that needs the competition to drive down prices so us mere mortals can afford to visit our English-speaking breathern in the Southern Hemisphere more than once in a lifetime.

    Cheers!

    Sean in MKE

    1. Sean – In the denial, it shows that in Q3 2015 Qantas/American had 49 percent of total passengers in the market. In July 2016, Qantas had 53 percent of the nonstop seats between the US and Australia while American had 6 percent. This latter piece excludes options via New Zealand or Fiji which are viable connections. There’s no question they’re #1 in the market.

    2. I agree this is a good discussion and I give CF credit for digging thru a document that I knew existed but wouldn’t have read until he highlighted these items.

      The issue is that LAX-OS is such a high percentage of the entire US-OS market (nearly 60%) and even in that market, QF has 42% of the seats; AA adds another 9% which is about the same size as DL. UA is at about 15% of the capacity from LAX while VA is at 23%. There just is no way for QF to combine with anyone and still leave a competitive market among more than 2 players.

      AA did not get a chance to go for a JV until other carriers with much smaller shares already had theirs approved. Given that all of the players are taken, it is very likely that AA and QF will end up unaligned and without joint ventures in a market where there are 2 JVs.

      The bigger question is about AA which is clearly the weaker of the two carriers seeking the JV, particularly in LAX where they built up their presence based on alliance hopes.

      In addition to Australia, AA won the LAX-PEK route based on its promises that it could become a viable competitor to DL and UA who have strong Chinese partners. AA bought an equity stake in China Southern; AA and CZ implemented a codeshare but have had to scale it back because of Skyteam limits on the amount of codesharing that a Skyteam member can do outside of the alliance.

      Thus, AA’s international buildup at LAX might be at risk if the QF and CZ relationships cannot be developed to their full extent.

      1. Tim – I was thinking about Beijing as well. Beijing is a huge money loser for the airline, but the dynamics of that market are pretty different. For one, the airport is highly-constrained. Second, there are huge restrictions on how many frequencies can be flown between the two countries. If China doesn’t slide into full dictatorship and cut itself off from the world (despite political trends, seems unlikely considering how much it now relies on trade), then this is more of an investment in the future. Eventually that Beijing slot will be worth flying, and you can’t just park it until that time comes. So even though that route is a stinker, I bet American keeps it running just because of future needs.

        Still, LAX overall boggle my mind. I don’t understand why everyone likes to endure the bloodbath just for kicks. As a traveler, I’m not complaining.

        1. I agree that PEK is probably losing money – I can buy that argument more than SYD – but the real challenge for American is Chicago to Asia, which does include PEK. LAX-PEK is an attempt to round out AA’s presence in China from a third gateway but at least one of them isn’t working and hasn’t worked for years. Add in the latest gate/lease squabble at ORD – which should make a great article as soon as you release it – and AA’s prospects from ORD to Asia are much more of a financial drain now and in the future than LAX. Still, AA has multiple alliance issues to deal with in LAX and for now they are facing significant hurdles in several key markets in which they expanded.

  8. Thanks, Cranky! The Feb. 26, 2018 Application is a must-read for those of us with…whatever!

    “Metal-neutral,” “seamless” this, “seamless” that, “less integrated form of coordination.” Even another definition of the word “direct.” Still waiting for one defining “flight,” but I guess I’ll just have to wait for another “Ask Cranky” post.

  9. i’m cool with them approving this new application under 2 conditions :

    1. SYD-LAX is a carve-out
    2. simultaneously approve expansion of UA-NZ JV to cover Australia

  10. however, if it’s approved, 100% of AUS/NZ-US nonstop capacity will be covered by JVs, and absolutely meaningless 1-stop competitive offerings like via Fiji, Tahiti, or Hawaii (etc)

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