ACCC: Extending Qantas/Air Nuigini codeshare arrangement has potential to lessen competition

    Australian Competition and Consumer Commission (ACCC) issued (14-Mar-2018) a submission to Australia‘s International Air Services Commission, concerning a submission by Qantas to extend its codeshare with Air Niugini to include services between Cairns and Port Moresby and Townsville and Port Moresby. The ACCC stated:

    • Codeshare arrangements: The ACCC understands the codeshare arrangement is to be free sale on all routes. The ACCC’s view is that, from a competition perspective, a hard block codeshare is generally preferable to a free sale codeshare since it maintains a greater degree of rivalry between the airlines. The free sale nature of the proposed codeshare reduces the competitive tension between Qantas and Air Niugini in the arrangement, and any claimed competition benefits need to be considered in this context;
    • The ACCC considers that in the likely future without the codeshare arrangement in place:
      • Services between Brisbane-Port Moresby would be independently operated and marketed by Qantas, Air Niugini and Virgin Australia.
      • Services between Cairns-Port Moresby, Sydney-Port Moresby and Townsville-Port Moresby would be operated and marketed by Air Niugini. if Air Niugini were to significantly raise its price or reduce service, there would seem to be a real chance that either Virgin or Qantas would enter and contest services between Cairns-Port Moresby and Sydney-Port Moresby. The likelihood of a new entrant providing services between Townsville and Port Moresby is less clear, given the relatively low volume of traffic on that route;
    • Competition benefits:
      • On the Brisbane-Port Moresby route, Qantas and Air Niugini will continue to be able to market each other’s services, meaning there will be less competition between the two carriers in the marketing of their capacity;
      • On the Sydney-Port Moresby, Cairns-Port Moresby and Townsyille-Port Moresby routes, Qantas will be able to market Air Niugini capacity, which makes it less likely that Qantas would commence operating on the route in the event that Air Niugini were to significantly raise price or reduce service;
      • This leaves the threat of entry/expansion by Virgin Australia as the main source of competitive constraint on these routes;
    • There appears to be a real chance that Virgin’s ability to constrain the price and service decisions of Qantas and Air Niugini, particularly on the Brisbane-Port Moresby route, has deteriorated since the IASC’s 2016 assessment;
    • The ACCC considers that the codeshare arrangement has the potential to lessen competition and there have been developments since the IASC’s 2016 assessment which may indicate that the strength of the competitive constraint posed by Virgin has deteriorated. [more – original PR]