Moves by Qantas and Japan Airlines to partner in international markets highlight how carriers will look to closer cooperation as a key strategy to help rebuild networks decimated by the COVID-19 crisis.
The pair have applied for approval to operate a metal-neutral joint venture on routes between Japan and Australasia. The airlines cite the pandemic as a major factor in their rationale for the tie-up—although it would also heighten their dominance in this important market.
- Airlines say joint venture arrangement will help relaunch routes faster
- Proposal could give the pair a combined 68% share of Japan-Australia passengers
Bolstering alliances will be one of the measures used by various airlines to improve their odds of recovery. Another is consolidation, and Korean Air and Asiana Airlines have already moved in that direction with a merger deal. Of course, such a tactic is generally not viable for airlines from different countries.
The South Korean government has already given tacit approval and support to the Korean Air/Asiana merger, which would have been hard to imagine before the coronavirus pandemic. Now it remains to be seen whether the current crisis will also make regulators more amenable to cooperation deals that would face significant hurdles in less troubled times.
Both Japan Airlines (JAL) and Qantas are members of the Oneworld Alliance. They both also have significant joint-venture partnerships with fellow Oneworld carrier American Airlines in their respective transpacific markets. Japanese carriers have increasingly turned to alliances with overseas carriers in recent years as they look to boost their network reach while limiting fleet growth.
Qantas and JAL have filed applications with competition regulators in Australia, Japan and New Zealand for their proposed joint business agreement (JBA). They seek approval to operate metal-neutral services between Australia and Japan, with codeshares on domestic routes at both ends and on flights operated by Qantas between Australia and New Zealand.
The two airlines said they intend to launch the JBA in July, assuming they gain the necessary approvals. The Australian Competition and Consumer Commission (ACCC) has laid out a tentative decision timetable that aims for a draft ruling in March and a final determination in May.
The application is for a five-year period, and the two airlines have also asked for an interim authorization to allow them to start planning and rebuild demand as quickly as possible when border restrictions ease.
Qantas was already by far the largest player in the Japan-Australia market before the pandemic. The Qantas Group—including Jetstar—had a 72.7% share of nonstop capacity in the week of Jan. 4, 2020, according to data from CAPA - Centre for Aviation and OAG. All Nippon Airways (ANA) accounted for 14.3% and JAL 13%.
JAL and ANA are the only ones serving this market a year later, after Qantas and Jetstar temporarily suspended most international flights due to COVID-19. The Japanese airlines are operating far fewer frequencies to Australia than they did a year ago.
In their December 2020 filing to the ACCC, the applicants state that the Qantas Group carried a combined 58% of passengers traveling between Japan and Australia in all of 2019. JAL was next on the list with 10% and ANA had 8%. The application also stresses that indirect operators had a significant presence in this market, including Singapore Airlines with a 7% share of passengers, and Cathay Pacific with 6%. This means the Australia-Japan market was “highly competitive” in terms of services and prices, according to the applicants.
The airlines stress that the JBA would allow them to resume suspended routes faster than under their current limited relationship. The partners said they also intend to launch a new route between Australia and Japan if their proposal is approved, although they have not revealed which cities it would connect.
Without the new joint arrangement, resuming flights between Australia and Japan “will carry higher degrees of risk” from a financial perspective, the carriers say. This would be particularly true for flights other than those in the core Sydney-Tokyo market.
Qantas and JAL would both be likely to “focus heavily” on the Sydney-Tokyo routes if the JBA is denied and they have to continue to operate independently, according to the carriers’ application. This would delay the reinstatement of the other Australia-Japan routes after the pandemic, they say.
Under the proposed JBA, Qantas will have access to 14 new codeshare destinations in Japan, and JAL will have access to 15 new codeshare points in Australia and New Zealand. There will be closer frequent flyer ties, and the partners will coordinate on pricing, scheduling and marketing.
The JBA represents a major expansion of the pair’s relationship. Before the COVID-19 crisis, Qantas and JAL only codeshared on a handful of nonoverlapping routes. These included flights by each carrier from their countries to Singapore, and the Qantas route from Sydney to Auckland. It also covered routes operated by Qantas subsidiary Jetstar from Cairns and Gold Coast in Australia to Japan.
In the ACCC application, the airlines said they have an “arm’s-length” codeshare agreement at the moment. Aside from the two Jetstar routes, none of the carriers’ direct flights between Australia and Japan are covered.
Prior to the pandemic, Qantas was flying to Tokyo daily from Sydney, Melbourne and Brisbane, along with four weekly services on the Sydney-Osaka route and a seasonal Sydney-Sapporo flight. JAL flew from Tokyo to both Sydney and Melbourne daily. ANA had two daily Australian flights, one between Tokyo and Sydney and a service from Perth to Tokyo that began in September 2019. ANA had also planned to launch a second flight on the Sydney route last year, but that was derailed by the pandemic.
All of the Qantas Group’s flights to Japan remain suspended. JAL is only operating three weekly return passenger flights between Tokyo and Sydney, and ANA is operating five weekly returns to Australia.
Air New Zealand is the only airline that offered direct passenger flights between New Zealand and Japan before the pandemic, codesharing with ANA. ANA and JAL both rely on their partners for access to New Zealand, via Australia in the case of JAL-Qantas.
Another player was set to emerge in the Australia-Japan market, and may still do so in the future. Virgin Australia won a coveted slot at Tokyo Haneda Airport and was due to launch a Brisbane-Tokyo route in March 2020 in partnership with ANA. However, the pandemic and Virgin Australia’s subsequent restructuring scuttled this plan.
Virgin has phased out its entire widebody fleet of Airbus A330s and Boeing 777s as part of its restructuring, meaning it has no aircraft in its fleet or on order that could serve Tokyo. The carrier has said, however, that it eventually intends to return to long-haul flying. It has asked Australia’s International Air Services Commission (IASC) to extend the deadline for using its Haneda slot, and the IASC has so far granted two extensions. Virgin will likely keep its options open for Tokyo service as long as it can.
There is also the possibility that a new low-cost carrier (LCC) will launch Japan-Australia flights. ANA plans to establish a medium-haul LCC around 2022 using Boeing 787s, and has said the Australasian market will be one of its targets.
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