American, Qantas promise lower fares after joint venture approval

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June 04, 2019
Qantas American US expansion
Image: Qantas.

American Airlines and Qantas are predicting lower fares and increased connectivity across the Pacific after the US Department of Transportation’s long-awaited tentative approval of the carriers’ joint venture.

The decision was announced by DOT secretary Elaine Chao Monday and, if given final approval, will allow the carriers to coordinate their planning, pricing, sales, and frequent flyer activities on flights between the US and Australasia.

It represents a turnaround for the department, which tentatively rejected the original application in 2016 on the grounds it could substantially reduce competition and consumer choice without producing counterbalancing benefits.

READ: Qantas plans inflight exercise zone as crunch time approaches for Project Sunrise.

Qantas and American took advantage of the change in the US Administration to regroup and lodge a new submission in February 2018.

In its latest determination, the department found that substantial public benefits “are likely to result from the proposed immunized cooperation and that the benefits can only be achieved with a grant of antitrust immunity”.

It said the benefits were likely to include additional seat capacity and the retention and expansion of current flights and codeshares, schedule optimization, the elimination of mark-ups and technological investments that would increase seat availability.

A show cause order tentatively grants antitrust immunity to enable the carriers to implement the arrangements.

The DOT said it included conditions that will protect competition, promote public benefits such as additional flights and increased seat availability, and enable it to monitor the effects of the joint venture for consumers.

The department is proposing that American and Qantas report annually on the progress of their commercial cooperation and provide a detailed assessment after seven years.

“This would undergo a comprehensive, data-driven review by the department based on clear benchmarks laid out in the Show Cause Order,’’ it said.

The drawn-out process is not completely over yet: interested parties have 14 calendar days to file replies which will then be reviewed by the department.

The airlines said final approval of the joint business will allow a commercial integration that would deliver new routes and significant customer benefits not possible through any other form of cooperation.

These would include better access to seats on each other’s network, leading to lower fares, as well as the opportunity to launch new routes and flights to new destinations.

There would also be an expanded codeshare relationship with optimized schedules on trans-Pacific service, more connections and reduced total travel time.

Frequent flyers would also benefit through higher earn rates for points on each other’s networks, increased redemption opportunities and improved reciprocal end-to-end recognition of our top-tier frequent flyers.

Co-location at airports, investments in lounges, baggage systems and other infrastructure would also better serve customers, the carriers said.

The airlines intend to launch several new routes within the first two years of the alliance with Qantas expecting to announce  Brisbane-Chicago and Brisbane-San Francisco once final approval is received.

“As was evident in the unprecedented level of public support for this application, the joint business will also create additional jobs at our respective companies and in the industries we serve,” American chief executive Doug Parker said.

“We thank Secretary Chao and the DOT for their careful consideration and look forward to final approval in the coming weeks.”

Qantas boss Alan Joyce said both airlines submitted a compelling proposal to the DOT that would bring significant benefits to millions of travelers and a boost to tourism.

“For more than 30 years, Qantas and American have connected the US and Australia as partners. This joint business means that we’ll be able to deepen this partnership to offer new routes, better flight connections and more frequent flyer benefits,” he said.

The airlines said they would review the order and expected a final decision in the next few weeks.