Australia’s largest airline is denied an alliance that would have accelerated post-COVID recovery on a lucrative flight path.
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The Qantas Airways Limited (ASX: QAN) share price has slipped in early trading on Monday after it received unfavourable news from the competition watchdog.
The Australian Competition and Consumer Commission (ACCC) announced that it has denied permission for the Australian airline to collaborate with Japan Airlines Co Ltd (TYO: 9201) for routes to and from Japan.
“The ACCC can only authorise an agreement between competitors if it is satisfied the public benefits would outweigh the harm to competition,” said ACCC chair Rod Sims.
“The alliance did not pass this test.”
Sims admitted that COVID-19 has presented the aviation industry with unprecedented challenges.
“Airlines have been severely impacted by the pandemic and this has been a very difficult period for them,” he said.
“But preserving competition between airlines is the key to the long-term recovery of the aviation and tourism sectors, once international travel restrictions are eased.”
Qantas shares are down 1.13% at market open at $5.26, after starting Monday at $5.32. The stock has gained 8.35% for the year.
Virgin Australia’s objection could impact Qantas shares
A Qantas-JAL collaboration would have allowed the 2 carriers to stop competing on price and service for an initial period of 3 years.
The ACCC revealed that Qantas’ biggest rival Virgin Airlines submitted an objection to such a proposal.
Virgin asserted that it would be difficult to compete in Australia-Japan routes if the other 2 airlines were allowed to operate as one big alliance.
In the year before the coronavirus arrived, Qantas and JAL carried 85% of the passengers between the two countries.
“We accepted that there was likely to be some short-term benefits from the alliance being able to jointly reinstate services more quickly when borders are reopened, which may initially stimulate tourism,” said Sims.
“However, the longer-term benefits of competition between airlines are cheaper flights and better services for consumers, which is vital to the recovery of tourism over the coming years.”
Qantas did not comment on the ACCC decision, other than to post the watchdog’s statement to the ASX.
The ACCC hinted at its opinion in a draft decision back in May and since then Qantas has opened a new route between Cairns and Tokyo.
Sims said this suggested Qantas would do fine without an alliance.
“We think Qantas could commence a new Cairns service without the alliance and the timing of any such service would be best determined by commercial factors in a competitive environment,” he said.
“Jetstar services on this route are currently planned to start again from February 2022, without the alliance.”
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Motley Fool contributor Tony Yoo owns shares of Qantas Airways Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.