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American & Qantas Give Up on Expanded Alliance

By Michael B. Baker / 29 November 2016 / Contact Reporter

American Airlines and Qantas are abandoning plans for an expanded joint business agreement following the U.S. Department of Transportation's rejection of their antitrust immunity request, the carriers announced.

For more than a year, the carriers have been seeking antitrust immunity so they can begin closer cooperation on flights between the United States and Australia. The new joint venture would have enabled them to coordinate schedules, cross-sell and share revenue. In anticipation, they had launched new services, including American routes from Los Angeles to both Sydney and Auckland and Qantas service to Dallas.

The DOT denied the application on Nov. 18, however, saying the expanded alliance "would create a potentially anticompetitive environment, given the scale of the resulting joint business, which would account for approximately 60 percent of the seats between the U.S. and Australia."

The DOT previously had granted antitrust immunity for a joint business agreement in 2011, at which time American and Qantas had no overlapping nonstop transpacific routes and American had no service to Australia. Antitrust immunity for the expanded alliance plans required additional approval, for which the carriers applied in June 2015.

The carriers had until Dec. 2 to object to the most recent decision and requested an extension on that deadline. The DOT rejected that request, and on Nov. 28, Qantas said both carriers chose to withdraw the application. "Given that approval has been in place since 2011, this is an extremely disappointing sequence of events for Qantas and American, as well as for customers, and ultimately for trade between the United States and Australia," Qantas said. "It follows approval from Australian and New Zealand regulators on the basis that our expanded partnership involved no detriment and would deliver significant benefits for consumers."

Qantas added that both airlines are reassessing their own transpacific networks following the rejection. Existing codeshare agreements between the two carriers will continue.

American Airlines said the 14-day window was not enough to formulate a response and that the decision represented "a significant departure from prior DOT decisions," citing existing JVs between United Airlines and Air New Zealand and between Delta Air Lines and Virgin Australia.

"Other airlines have the significant competitive advantage of antitrust immunity in the U.S.-Australasia market," according to American. "With the same opportunity, American and Qantas would have been able to compete more effectively and increase consumer benefits in the market."

This is the second time in November the DOT has thrown a wrench into U.S. carriers' JV plans. While the DOT gave tentative approval this month for Delta's proposed JV with Aeromexico, it did so with a Show Cause Order proposing the carriers together give up 24 daily transborder landing slots from Mexico City's Benito Juarez International Airport and six slots from New York's John F. Kennedy International Airport. The carriers already had agreed to give up eight of the Mexico City slots to comply with Mexican regulators. Giving up the rest of the slots will "prevent harm to consumers resulting from the carriers' dominant positions at [Mexico City] and JFK," according to the DOT.

Delta since has filed an objection to the proposed terms, calling them "unprecedented remedies and limitations unrelated to any competitive harms arriving from the [joint venture]." Delta may reconsider its application should it be required to comply. "Without significant changes to the DOT remedies proposed in the Show Cause Order, the [joint venture] may not be economically viable," according to Delta.

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