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.