Australian Regulator Gives Qantas-Emirates Alliance Conditional Approval

Australia’s competition regulator granted conditional final approval on Wednesday to a five-year alliance between struggling national flag carrier Qantas Airways Ltd and Emirates Airline, just days before the first Qantas flight is due to transit through Dubai.

The Australian Competition and Consumer Commission said its approval was conditional on the airlines maintaining at least their pre-alliance capacity on routes between Australia and New Zealand amid concerns about reduced competition.

The ACCC, which had already halved the desired alliance timeframe from 10 years, said it believed the tie-up as a whole would result in “material, but not substantial” public benefits through enhanced products and improved operating efficiency.

Qantas announced the Emirates deal in September, ending its 17-year alliance with British Airways, owned by IAG, which some analysts have suggested could seek a new partner such as Qatar Airways.

The arrangement, which includes switching the airline’s hub to Dubai from Singapore for European flights, will enable Qantas to cut loss-making international routes and focus on its profitable domestic and budget operations.

“Qantas is an Australian icon and the future of its international business is much brighter with this partnership,” Qantas chief executive Alan Joyce said in a statement.

Qantas shares opened 0.9 per cent higher at A$1.74 ($1.82). The stock has surged 49 per cent since it announced the alliance in early September.

Qantas and Emirates have been coordinating pricing, sales and schedules since interim approval was granted by the ACCC in December.

The first flight to transit through Dubai leaves Sydney on Sunday, headed for London.

Joyce and Emirates CEO Tim Clark are expected to elaborate on plans to expand the alliance when they host the official launch in Dubai on Monday.

COST SAVINGS

Analysts expect the pair to explore further cost savings through catering, ground work, maintenance and procurement synergies.

The tie-up has been welcomed by the government, airports and tourism organisations but rival Virgin Australia Holdings Ltd , which operates its own alliance with Etihad, has argued the deal is too broad and would entrench Qantas’ dominant position in the domestic and corporate market to the detriment of Australian passengers.

The ACCC singled out trans-Tasman competition in its ruling, insisting the pair maintain at least their pre-alliance aggregate capacity on their four overlapping routes, subject to a review to consider whether increases in the minimum required capacity are warranted.

New Zealand authorities are yet to approve the alliance.

Qantas has been stripping costs out of its business after a year troubled by a record fuel bill, rising competition and a labour union that has opposed the carrier’s spending cuts.

Analysts have suggested the alliance could save the Australian airline A$90 million to A$100 million before taxes annually.

Emirates, meanwhile, is looking to increase its business in Australia to counter moves by Etihad and Qatar Airways.

In recent moves, Etihad doubled its stake in Virgin to 10 per cent while Qatar launched its first service to Perth late last year, saying that it also wanted to partner with Australian carriers.