American and Qantas Get Tentative Joint Venture Approval… With Conditions

American finally received some good news this week. After getting rejected once, the airline received tentative approval from the US Department of Transportation (DOT) to put together its joint venture with Qantas. This is welcome news, and it should have been approved previously. This isn’t an outright approval, however. There are some conditions being imposed in order to receive the rubber stamp. Fortunately for the airlines, they aren’t onerous.

When the joint venture was first shot down in 2016, there were concerns about competition. Even though this is a new federal administration presiding over the case now, that doesn’t mean the precedent has been thrown out. Instead, DOT now just says that market dynamics have changed. Specifically in the US to Australia/New Zealand sphere, DOT sums it up this way.

This market has grown substantially since the Department last evaluated it, incumbents have increased services, and consumers have experienced expanded choice.

Indeed it has, if the DOT numbers are to be believed. Here is what was in the report.

This shows total passenger growth from 3.428 million to 4.013 million with nearly all the big players growing except for Hawaiian. But half that growth comes from American itself which didn’t fly to Australia in the first go-around. That wouldn’t reflect increased competition since it will now fold into the Qantas numbers. This also strangely shows no traffic going on Air Canada in 2015 which seems unlikely to me. Further, United has pulled back on Houston and LA to Sydney recently, though it has added San Francisco to Melbourne. So there is a story to be told here, but DOT may also just have been looking for a way to justify reversing course.

There was also a change in the application itself when the airlines modified it to make it non-exclusive. That means Qantas can continue working with Alaska… and others if so desired. To sum things up, DOT left it this way:

From an overall perspective, the subject markets in this case are concentrated and the Joint Applicants have relatively high market shares. However, the analysis also shows evolving market conditions in which the participating airlines are competing effectively and expanding their services. Indeed, the Joint Applicants appear committed, and are uniquely positioned, to introduce new capacity, which is likely to exert downward pressure on prices and enhance competition.

It is true that new capacity is coming. The airlines have said they will start Brisbane to San Francisco (a curious route that won’t likely benefit much from the joint venture) and Brisbane to Chicago (presumably because Qantas doesn’t have the range to make it nonstop to Sydney). This helps build that positive story, and DOT now feels comfortable approving the deal. All that being said, DOT hasn’t given the airlines carte blanche. It has opted to put restrictions on the approval to try to prevent shenanigans.

A 7-Year Check-Up

After seven years, American and Qantas will be required to complete a “self-assessment.” This is a comprehensive look at the competitive impact in the market that’s based on numbers, not opinions. The airlines will have to submit their findings to DOT for review, and if there are concerns, DOT can act. This falls short of the de novo review that JetBlue has been pushing for on a much shorter timeframe, but it’s something.

Why seven years? Well, DOT was being quite thoughtful here. Apparently the American/Qantas partnership will come up for review in Australia in 2021 and the Aussies tend to give 5-year increments. This ensures that the US and Australia reviews come up at the same time in 2026 to make data-gathering easier.

Forced Interlining With Newbies

The biggest condition from a public perspective (potentially) involves new entrants. If there are any new entrants flying nonstop between the US and Australia/New Zealand, then American and Qantas would be required to interline with them to help feed their flights. That’s nice for competition on the surface, but does anyone actually expect to see a new entrant in these markets? I would be quite surprised. This may very well just be a fluffy feel-good clause if this incredibly rare circumstance actually occurs.

Qantas Reveals All

As part of this approval, Qantas will have to start reporting full details to the DOT’s O&D Survey. The general requirement is for domestic airlines to participate, but if Qantas wants to play ball with American, it is going to have to be a full participant as well. That means Qantas data will be readily available publicly, and I always like seeing that.

There are also minor conditions like an annual reporting requirement talking about any developments from the previous year, but those are minor and routine.

Are these conditions unfair? Not at all. It makes it look publicly like DOT is being tougher on the airlines while still letting them partner. I thought the deal should have been approved back in 2016, so I welcome this. It is technically only a tentative approval, but that’s usually just a formality. Expect to see this one sail through from here on out. Now American can go back to worrying about its LATAM joint venture problems.

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20 Responses to American and Qantas Get Tentative Joint Venture Approval… With Conditions

  1. Brad says:

    Hi Cranky,
    Is there any chance that the Brisbane Flights are due to flight time restrictions? Sydney has a strict curfew, meaning that given flight lengths/time differences, all the flights to the West Coast of the States leave Sydney in a 90 minute window in the morning, with the exception of one Qantas flight. Brisbane has no restrictions, which is why the CX flight from Hong Kong arrives at 23:30 and leaves at 01:00. Is this part of the driver?

    • CF says:

      Brad – I can’t imagine that’s a factor. If they could do Sydney, they would I’m sure. But it is 300 miles further and that probably stretches the range of the aircraft.

  2. Tim Dunn says:

    The biggest news in the AA/QF JV approval is… continuation of business as usual in the way the US controls JVs – which is bad news for B6. B6 has tried to argue that the 3 JVs have so heavily concentrated the market to Europe that B6 can’t get in. B6 will be forced to acquire slots at the airports it wants to serve and “settle” for secondary airports just like most new entrants if no existing slots are available.

    The DOT said that all AA/QF have to do is interline with new entrants – but that is industry standard practice that is more dependent on other carriers than the big global carriers of the world. For B6, the worst the DOT might say to BA/IAG, AF/KL or the LH group is that they have to interline with B6 – but that is likely a cost that B6 would have to bear based on their perceived need to interline in Europe.

    There is no mention of forced transfers of slots or use of “good” gates – something that HA now says is putting them at a disadvantage at LAX while it is a given that the number of slots at SYD to the US at the time most US bound flights leave is getting very thin. Airports such as LAX that are full from existing carriers will remain full and airlines that don’t already have gates and/or slots at other US airports aren’t going to be forced in any differently than already exists.

    For AA/QF, they will ride the coattails of the much larger QF to Australia just as they do with JL to E. Asia. This is one more JV where AA is substantially smaller than their JV partner in the region where the two compete. They might add a flight or two to Australia but they have been able to do that up to now if the market existed.

    The real tilt in the market is AA/QF vs. UA and the potential to shift some lucrative traffic away from UA.

    Otherwise, the JV approval signals no major change to the way the US controls JVs which is bad news for B6 and its desire to force its way into the most lucrative airports in Europe.

    • henry LAX says:

      isn’t it funny you think traffic will be siphoned only from UA instead of from both UA/NZ and DL/VA hahahahhahaa

  3. SEAN says:

    Just wondering… if AA & QF had put some $$$ down under the table, would the JV have no restrictions put upon it by the DOT?.

  4. Pilotaaron1 says:

    Looking at this, I wish that they would offer SYD-PHX and/or PER-LAX (maybe too far). Oh well, I can always dream.

    • ozfred says:

      PER-CNS-LAX is almost a great circle route the whole way…. 9322 miles
      And yes PER-LAX non-stop is a bit too far at 9319 miles.
      I’d say some one would need to convince QF.
      I flew HNL-CNS in 1987

  5. henry LAX says:

    ” That’s nice for competition on the surface, but does anyone actually expect to see a new entrant in these markets? I would be quite surprised. This may very well just be a fluffy feel-good clause if this incredibly rare circumstance actually occurs.”

    This is more to protect other existing players in the market, e.g. yank the interline rug from UA etc (yes, UA does directly sell UA+QF itineraries on their website whenever the UA+NZ option is non-existent or thoroughly uncompetitive timings, even with zero code-share, and doesn’t get priced into insane full-fare-Y territory)

    I’ve been telling my friend inside Willis Tower they need to prep a BNE response very soon, from either LAX or MEL. Another excellent response that UA+NZ could do is accelerate their future announcement of AKL-NYC (whether EWR or JFK is appropriate here is wildly up for debate, and i don’t think EWR is necessarily a better option)

    • henry LAX says:

      LAX or *****SFO

      (sorry fat cat finger)

    • Tim Dunn says:

      thank you for proving my point above.

      • henry LAX says:

        hahah thanks for the laugh.

        Both Star and oneworld are sufficiently diversified in terms of routes and gateway airports in North America and in Australia. The gap is further exacerbated if you wanna count AKL.

        Star alone flies nonstop from 4 airports in continental NA if you only count Australia, and 5 if you count AUS+NZ. In terms of routes I can count 8 to Australia, and another 5 if you add in AKL. The way NZ has been expanding, I definitely see a good possibility of AKL-NYC nonstop arriving in time for Oct 2020.

        Even if we wanna ignore all the peripherals and just count SYD, nonstop alone it’s flown from 4 NA airports.

        (i’m not counting random beach markets like Guam, Hawaii, American Samoa, or that random NZ service via Rarotonga)

        I wouldn’t be so sleeping so soundly at night if i were to throw all eggs into the LAX basket and only have a total of 3 routes. Sounds like the easiest target to pick off of with the impending approval of the JV, particularly since NZ did a 180 flip-flop and is now in a close partnership with QF Trans-Tasman.

  6. Paul says:

    The DFW Airport has a list of cities they want flights to, and they offer incentives. One of them happens to be Aukland. Cranky do you see a seasonal flight on AA metal to Auckland happening? Speculation around DFW is that AA will start year round to Mel, with incentives from DFW airport.

    • CF says:

      Paul – It’s always possible that a seasonal flight could happen. It’s a long and thin route, but during peak season, it might make sense.

  7. AJ says:

    New players on the Pacific route seems crazy in some ways… and yet it wasn’t that long ago it was just QF/VA/UA (with their tired 747s) operating. Is Hawaiian a likely entrant or is that just a crazy idea? Or even crazier, Southwest if they somehow decide to go widebody? Somehow I don’t see either happening.

    • CF says:

      AJ – Well, Hawaiian already flies it from Honolulu, so it wouldn’t be a new entrant, I assume. But of course, they already interline with each other anyway. Southwest – there is zero chance of that any time in the remotely distant future.

  8. PaulYeg says:

    There may be a new North American entrant on the Pacific in a year or two, if Westjet introduces Calgary-Sydney with their new B-787s.

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