Qantas – Emirates alliance authorised

Transport Minister Gerry Brownlee has authorised a Master Coordination Agreement between Qantas and Emirates, opening the way to shared services between the airlines on trans-Tasman routes.

In approving the Master Coordination Agreement under Part 9 of the Civil Aviation Act 1990, Mr Brownlee says the alliance will bring benefits to airline passengers, exporters and the tourism sector.

“Qantas and Emirates will be able to cooperate on passenger and cargo transport operations, and other related services, for an initial period of five years.

“Exporters and travellers will benefit from strengthened connections with Emirates’ international network, including 30 points in Europe, as well as the growing Middle East region and Africa.

“The Master Coordination Agreement sets the stage for Qantas and Emirates to share services across the Tasman, allowing Emirates to offer Queenstown and Wellington as tourism destinations accessible on their network.

“Trans-Tasman competition will be maintained through existing carriers on the route and the threat of entry by new carriers.  Conditions imposed by the Australian Competition and Consumer Commission require the airlines to maintain at least their pre-alliance aggregate capacity, subject to a review to consider whether increases in the minimum required capacity are warranted.

“Competition between strong home carriers is important for the Australasian aviation market, and this alliance will ensure competition is retained, while opening the door to additional benefits for New Zealand,” Mr Brownlee says.

Questions and Answers

What is the New Zealand Minister of Transport’s decision on the Qantas-Emirates Master Coordination Agreement application?

The New Zealand Minister of Transport has authorised the alliance.

The authorisation is limited to a five-year period, after which the alliance application will need to be resubmitted for further authorisation.

How will this affect day-to-day operations on Tasman routes for both airlines?

Under the alliance the two airlines will work together on the services and fares they offer.

Passengers will be able to access the global Emirates and Qantas networks with reduced disruption.  The two airlines will also be able to cooperate on the earning and redemption of frequent flyer points, access to airport lounges, and premium services.

What will this mean for fares?

There will be more sustainable competition and cost savings as a result of the alliance, as well as a commitment that the two airline applicants will maintain the number of seats that are operated across the Tasman. This should allow the low fares that passengers enjoy to be maintained.

What will this mean for exporters?

Exporters will more easily be able to send freight between the Qantas and Emirates networks.  In particular, this improves access to the extensive network Emirates offers through Europe, the Middle East and Africa.

What will this mean for tourism?

Through code-sharing flights with Qantas, the alliance will allow Emirates to offer cities such as Queenstown and Wellington as tourism destinations accessible on their network.

How long is this authorisation in place for?

The authorisation given by the Minister of Transport has effect for a five year period.

What conditions have been placed on operators?

The Australian Competition and Consumer Commission imposed capacity conditions that apply to the trans-Tasman sectors which Qantas and Emirates both operate.  These conditions limit the airlines’ ability to increase prices through reducing capacity.

The specific provisions agreed to between the applicants prior to the New Zealand authorisation also include that it is for a five-year period.

How will anti-competitive behaviour be monitored and avoided?

Authorisation of the alliance for a five-year period places a strong incentive on the two airlines to operate in a competitive manner.  How the applicants implement the alliance, as well as the state of the market, will be taken into account in deciding whether any further authorisation should be given.

The Minister of Transport also has the ability to revoke authorisation should the airlines fail to comply with terms of the alliance agreement.

Why was the New Zealand application made to the Minister of Transport and the Australian application to the Australian Competition and Consumer Commission (ACCC)?

Different jurisdictions have different arrangements in place for consideration of airline alliance proposals.

In New Zealand the Civil Aviation Act provides for the authorisation of international airline alliances. There is a separate competition regime under Part 9 of the Civil Aviation Act for international air transport arrangements. Applications are considered by the Ministry of Transport, which then provides advice to the Minister of Transport to inform his or her decision.

Globally, having a separate regime for international air transport is not uncommon. For example, in the United States such decisions are made by the Department of Transportation.

What process was followed in considering the application?

The process the Ministry of Transport followed in preparing advice to the Minister of Transport was as follows:

• The Qantas-Emirates application for authorisation of an alliance was posted on the Ministry of Transport website.
• Interested parties had until 19 October 2012 to make their views known to the Ministry.
• These views were posted on the Ministry of Transport website.
• The Ministry prepared a final report to the Minister of Transport making a recommendation to authorise the alliance.

Note: before the report was finalised the applicants agreed provisions on the time period for authorisation.

How has the analysis of the application been undertaken?

There have been three parts to the analysis.

First, the specific statutory requirements were considered, including detailed consideration of whether or not the alliance arrangements fully fell under the jurisdiction of the Civil Aviation Act. With the exception of one specific group of provisions in the arrangements, which the applicants decided not to seek approval for, these requirements were assessed to have been met.

Second, the benefits put forward by the applicants were considered. These were assessed to be valid.

Third, a general public interest test was applied. This included making an assessment of the market in terms of the degree of competition in various markets.

Under the alliance there will be a consolidation of operators on trans-Tasman routes.  The Ministry’s analysis concluded that this could be managed or mitigated by:

• continued competition from Air New Zealand and Virgin Australia (which currently operate under an alliance on trans-Tasman routes)
• the threat of entry from other airlines if prices were to rise 
• a five year duration for approval which will both allow an assessment of the impact of the alliance and incentivise the applicants to ensure that benefits are delivered
• capacity conditions imposed by the Australian Competition and Consumer Commission which mean that the applicants can not reduce capacity below current levels. This effectively limits the applicants’ ability to increase prices.

Has the Ministry of Transport worked with the ACCC while considering the applications?

The two applications have been considered independently under different laws. Ministry representatives attended the ACCC pre-determination conference and have taken account of the views expressed there by New Zealand stakeholders.

Following the authorisation of the alliance by the ACCC, the airlines agreed that they would also see reauthorisation of the arrangements in New Zealand after five years.   Officials also took account of the capacity conditions imposed by the ACCC in providing advice to the Minister.