Qantas & Japan Airlines Fight To Save Their Joint Venture Bid

A proposed joint venture agreement between Qantas and Japan Airlines is hanging by a thread as Australia’s competition…

Qantas & Japan Airlines Fight To Save Their Joint Venture Bid

A proposed joint venture agreement between Qantas and Japan Airlines is hanging by a thread as Australia’s competition regulator flags disallowing the deal. That news saw both airlines revisit their proposal. Their response to the adverse draft determination includes several sweeteners, notably a new service between Cairns and Tokyo.

The ACCC has proposed rejected a joint service agreement between Qantas and Japan Airlines. Photo: Vincenzo Pace/Simple Flying

Qantas & Japan Airlines want to expand a longstanding codeshare agreement

Both oneworld members, Qantas and Japan Airlines (JAL) have long worked in tandem, with a limited arms-length codeshare agreement. Under that agreement, Qantas codeshared on certain JAL-operated services from Singapore to Tokyo. JAL codeshares on certain Qantas-operated services from Australia to Singapore and on Jetstar services from the Gold Coast and Cairns to Japan. JAL also codes on Qantas’ Sydney – Auckland service.

Late last year, Qantas and JAL applied to Australia’s competition regulator, the Australian Competition and Consumer Commission (ACCC), to deepen the working relationship. The airlines wanted approval for a joint venture that they said would provide substantial benefits for customers and help accelerate the recovery of the tourism, trade, and corporate travel links between Australia and Japan.

The joint venture would initially run for five years and cover an expanded codeshare relationship and optimize schedules on flights between Australia and New Zealand and Japan, enhance frequent flyer benefits for Qantas and JAL passengers, see improvements in the customer experience, more premium travel opportunities, and the coordination of pricing, schedules, sales, and tourism marketing to develop new and improved travel products, delivering more choice for customers.

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Japan Airlines and Qantas argue the joint venture would see significant benefits for the airlines and their passengers. Photo: Vincenzo Pace/Simple Flying

The ACCC is unenthusiastic about the joint venture

With similar joint ventures with Emirates, American Airlines, and China Eastern under their belt, perhaps no one was more surprised than Qantas and JAL when the ACCC said it was likely to block the application. The ACCC thought the proposal lessened competition and would prove detrimental to passengers.

The ACCC gave Qantas and JAL a couple of months to digest the news before coming back with a final determination. That final determination is due in the next month or two. In the meantime, the airlines have sought to address issues of potential competitive detriment and emphasize the “meaningful and immediate” benefits to passengers.

The airlines have also offered an interesting sweetener – a new Qantas service between Cairns and Tokyo. The flights would be the first Qantas international services from Cairns since 2009.  Initially running four times a week, the flights are contingent on joint venture approval and international travel beginning to normalize.

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Qantas is dangling full-service flights between Cairns and Tokyo. Photo: Jetstar

Proposed Qantas flights a welcome boost for Cairns

Until Qantas suspended most of its international flying, its low-cost subsidiary Jetstar operated daily Cairns – Tokyo and Cairns – Osaka flights. Under the proposed joint venture agreement, the full-service Qantas product is on offer.

Qantas argues one of the important benefits of the joint venture agreement would be new city pairs between the two countries. In the 1990s, you could sit in your hotel room in Cairns and watch a congo line of Boeing 747s out of Japan, bringing in passengers every morning. But those days are long gone. Japanese visitor numbers to Cairns slumped to 65,000 per annum in 2010. But by 2019,, Japanese visitor numbers to Cairns slowly rebuilt to 155,000.

After the Chinese, Japanese visitors were the second largest foreign visitor group to Cairns in 2019. But geopolitical tensions between China and Australia mean Chinese travelers may not return to Cairns in the numbers they once did. Once again, tourist dependant Cairns is eyeing Japan and swinging in behind the proposed joint venture.

Industry group Tourism Tropical North Queensland (TTNQ) welcomes the proposed Cairns flights. They say the joint venture would bring major benefits to tourism in North Queensland and the 20,000 Cairns locals the tourism sector employs.

The operator of Cairns Airport, North Queensland Airports, says a return of direct air connectivity between Japan and Cairns, with full-service carriers such as Qantas and JAL, is critical to accelerate the recovery of international tourism and boost the local economy.

Aside from Qantas and JAL, ten organizations, mostly tourism lobby groups, have lined up to support the joint venture bid since the ACCC flagged rejecting it.

“Australia’s international tourism sector certainly needs help post-COVID, and it appears the proposed joint venture agreement helps deliver that,” says the Australian Chamber of Commerce and Industry. “It allows the tourism industry to work with airline partners to leverage opportunities that flow from Japan with increased certainty and build back this critical inbound market.”

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A Qantas jet on the apron at Cairns Airport. Photo: Getty Images

Market dominance remains a big hurdle for Qantas and JAL

The problem for Qantas and JAL is that they normally dominate the airline market between Australia and Japan. Until the travel downturn, Qantas flew to Tokyo daily from Sydney, Melbourne, and Brisbane. In addition, Qantas flew Sydney – Osaka four times a week and Sydney – Sapporo on a seasonal basis. In addition to their Cairns flights, Jetstar operated daily Gold Coast – Tokyo flights. JAL operated to Tokyo from both Sydney and Melbourne daily.

Jetstar is included in the joint venture application. But given the compatibility between the full-service carrier offerings and network connectivity, the “primary focus” is Qantas and JAL.

Typically, Japan is Australia’s fifth biggest inbound market.  In 2019, there were 6,698 nonstop flights between the two countries. Australian Government statistics reveal 1,562,465 passengers flew nonstop between the two countries in 2019. Between them, Qantas, Jetstar, and JAL handled 87.6% of those passengers. All Nippon Airways had the remainder of the market. In proposing the block the joint venture, the ACCC said;

“The ACCC considers that the proposed coordination is likely to give Qantas and Japan Airlines an increased ability and incentive to unilaterally reduce capacity or limit growth in capacity.

“As passenger numbers return to pre-COVID-19 levels, the elimination of competition between Qantas and Japan Airlines is likely to result in significant public detriment.

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ANA also flies between Japan and Australia. Photo: Getty Images

Qantas & JAL rebut the ACCC’s talk of anti-competitive behavior & fare hikes

Qantas and JAL argue they have no ability to artificially restrict growth or increase fares. They say in the current weakened demand environment, the suggestion is “fanciful.” Around three-quarters of passengers flying between the two countries are price-sensitive leisure passengers. The two airlines say any anti-competitive conduct would be quickly detected and called out. Qantas and JAL say suggestions they would engage in anti-competitive behavior have no basis and are entirely rejected.

The fate of the joint venture between Qantas and JAL is worth keeping an eye on. On the one hand, beneficiaries of the agreement – cities like Cairns and its hotels and tourism operators, want to see the joint venture approved. Competitor airlines like ANA, Singapore Airlines, and Cathay Pacific (both the latter airlines usually do significant Australia-Japan business via their hubs) would like the agreement knocked back. The ACCC is trying to predict a short to medium-term flying environment and how the joint venture would work within that.

A final decision is expected by the end of September.

Do you support the proposed joint venture agreement between Qantas and JAL? Post a comment and let us know.

Source : Simple Flying More   

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International Passenger Numbers Stay Down Across Asia-Pacific

Ongoing travel restrictions and border closures continue to plague international airline travel in the Asia-Pacific region. The region’s…

International Passenger Numbers Stay Down Across Asia-Pacific

Ongoing travel restrictions and border closures continue to plague international airline travel in the Asia-Pacific region. The region’s airlines carried just 1.4 million international passengers in June, or just 4.4% of the 32 million carried in the corresponding month in 2019.

International passenger traffic across the Asia-Pacific region remains substantially down on 2019 levels. Photo: Vincenzo Pace/ Simple Flying

June’s numbers up fractionally on May’s figures

The Kuala Lumpur-based Association of Asia-Pacific Airlines (AAPA) have released the region’s international traffic figures for June. They revealed a fractional improvement over May’s numbers. In contrast to June, 1.3 million international passengers flew on the region’s carriers in May, representing just 4.3% of the volumes carried in the same 2019 month.

“The already dire situation has recently been compounded by new COVID-19 infections across the region due to the Delta variant,” says AAPA Director-General Subhas Menon. “Ongoing border restrictions are holding back any meaningful restart in international travel markets.”

The airline industry group speaks with a common voice on behalf of 14 member airlines drawn from the Asia-Pacific region. Member airlines range from smaller carriers like Royal Brunei Airlines to traditional heavy hitters such as Singapore Airlines and Cathay Pacific.

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Cathay Pacific is one of 14 AAPA member airlines. Photo: Jake Hardiman/Simple Flying

Passenger numbers are still way down on comparable 2019 levels

While some member airlines have domestic networks to fall back on, others do not. What they all have in common is a lack of business on international routes across the Asia-Pacific region.

Singapore Airlines flew 114,200 passengers in June. In contrast, the airline flew 1,883,000 passengers in June 2019. Passenger loads in June 2021 on Singapore Airlines were 17.2% compared to 86.7% in June 2019.

Japan Airlines, which does have a domestic network to help prop up ailing international operations, flew 54,984 passengers on international sectors in June. By way of comparison, the Tokyo-based airline flew 784,199 international passengers in June 2019, including 501,591 passengers around the Asia-Pacific region.

Garuda Indonesia has only published traffic data up to May. Like Japan Airlines, they have a substantial domestic network. Like Japan, Indonesia is also grappling with waves of COVID-19. In May 2021, Garuda Indonesia’s international flights flew 8,121 passengers.

In the same month, Garuda Indonesia’s CEO, Irfan Setiaputra, told employees the airline needed to be comprehensively restructured. “Failure to carry out the restructuring program could result in the company being terminated suddenly,” he warned.

“Many Asian economies are facing renewed challenges in bringing the pandemic under control and in progressing vaccination roll-outs,” the AAPA Director-General said last week. “Prospects for an early recovery for Asian airlines remain dim unless cohesive action is taken by governments to accelerate vaccination roll-outs and reopen borders safely.”

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Garuda Indonesia Airlines continues to teeter on the brink of collapse. Photo: Getty Images

Cargo remains a bright spot for airlines across the Asia-Pacific region

Cargo continues to be the saving grace for most airlines throughout the Asia-Pacific region. Most regions worldwide are also seeing strong demand for air cargo services.

“Several factors have contributed to the strong air cargo demand,” says airline data consultancy OAG. Those factors include strengthening global economic activity, trade, and a rise in consumer spending, including e-commerce.

Also driving cargo demand is a lack of commercial flights in the Asia-Pacific regions. Trimmed down commercial passenger flight timetables are disrupting supply chains, with the bulk of the world’s air cargo normally travelling in the belly holds of scheduled passenger services.

AAPA says cargo capacity has seen an 11.7% year-on-year increase, leading to an 8.2% point jump in the average international freight load factor to 73.3% for June 2021.

Source : Simple Flying More   

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