American Airlines, Qantas JV approved

The US Department of Transportation issued its final approval for antitrust immunity (ATI) of the American Airlines–Qantas joint business agreement on Friday afternoon. The consent comes 17 months after the pair applied and follows a tentative approval from early June. This was the second application for the airlines; in 2016 the prior appeal was rejected, with the government believing it would reduce competition more than it would help consumers. With the ATI secured the two carriers can coordinate on fares, scheduling and other operational processes in the US-Australasia market. The DoT did impose some limitations on the transaction but none are onerous or, indeed, significant in impeding the partnership.

We look forward to working closely with our valued partner, Qantas, on this new joint business. We now have the opportunity to launch new routes and provide enhanced service with better schedules, additional frequent flyer benefits and continued investments in the overall customer experience. – American Airlines Chairman and CEO Doug Parker

In some situations the potential benefits are clear. The two carriers can coordinate better on their Los Angeles-Sydney flights, for example, reducing schedule overlap. It also means that the two can deliver through fares across each others’ networks in the covered markets, a move that could lead to some price increases for travelers. Losing direct competition often does that.

At the same time, however, the airlines committed to stimulating demand to the tune of 180,000 annual passengers, or about 500 each day. The airlines previously tipped flights from Brisbane to San Francisco and Chicago-O’Hare as possible routes to launch should they gain the approval. Depending on frequencies and aircraft used these routes should meet that demand plan, assuming the passengers show up to fly them.

They also promise up to $310mm annually in consumer benefits as a result of the ATI approval, though details on where that actually shows up remain elusive. Even with reduction in competition they believe their alignment presents “a more viable third competitor” to the Delta Air Lines/Virgin Australia and United Airlines/Air New Zealand ATIs previously approved. Unlike in 2016, the DoT agrees with that assertion this time around.

Loyalty benefits??

Perhaps the most interesting part of the approval document is the inclusion of a comment from an American Airlines AAdvantage member frustrated with the inability to secure a flight from Washington, DC to Queenstown, NZ.

Mr. John C. Adams submitted a comment detailing his status in the American Airlines frequent flyer program and his unsuccessful attempts to use his accrued miles or cash to purchase a flight from Washington, DC to Queenstown and Auckland, New Zealand via American Airlines and Qantas. He supports the Department granting ATI to the Joint Applicants to the extent that ATI provides for more seamless ticketing ability; he opposes the Department’s tentative award should ATI further complicate his attempts at purchasing these tickets.

Mr. Adams’s filing is an interesting read, noting that he’s tried to redeem points and also to purchase tickets outright. It is Mr. Adams’s sincere hope that the ATI will allow the carriers to improve on their offerings in this market and the DoT seems to believe that will occur. (As an aside, I managed to find a $26k business class fare on his routing, besting the $16k trip he cited as “eye-popping” in the comment.) There is little reason to believe that the lack of antitrust immunity is the core cause of the high fares or the lack of award space. Excessively restrictive fare rules and limited award inventory are more likely to blame.

Protecting new entrants

JetBlue was the only airline that filed opposition to the ATI approval during the most recent round, seeking protection for smaller players in the markets and possibly access to more landing slots at congested airports. The carrier also appealed for a 5-year approval and requiring that the carriers apply from scratch at renewal rather than a more simple self-assessment. While the DoT indicates that JetBlue’s desires are met in the approval that seems to be a stretch. The deal is only for seven years rather than ten, but also not five. Moreover, the deal requires no slot divestitures. And the protection for new entrants comes only in guaranteeing that Qantas or American have to offer interline feed to a new transpacific operator, not that they have to guarantee JetBlue (or others) access to feed their long-haul flights at comparable interline rates.