Qantas-Cathay codeshare expansion rejected

David Casey May 28, 2019

Australia’s International Air Services Commission (IASC) is to block flag carrier Qantas’ application to forge a deeper codeshare arrangement with Cathay Pacific on routes between Australia and Hong Kong.

A draft decision statement said that while the proposals would result in “some consumer benefits” - including improved connectivity and potentially increasing route options - they are likely to “entrench and expand the position of Qantas and Cathay Pacific to the detriment of Virgin Australia’s competitive position and the position of any future entrants on the route”.

The regulator added: “If this occurs, it is likely to weaken competition on the route, leading to an increase in prices and/or a reduction in benefit to consumers.”

The two Oneworld carriers announced last September to begin codesharing on a number of each other’s services. The agreement allowed Cathay Pacific to add its code to 13 routes on Qantas’ domestic network in Australia.

It also enabled Qantas to display its QF code on services from Hong Kong to Perth and Cairns, as well as ten cities across India, Myanmar, Sri Lanka and Vietnam.

However, in January 2019, Qantas applied to the IASC for permission to allow Cathay Pacific to add its code to select Qantas services from Sydney, Melbourne and Brisbane to Hong Kong. Flights covered by the application involved connections to another Australian domestic point, or to international destinations beyond Hong Kong.

The application did not cover Qantas codesharing on Cathay Pacific flights as these are not covered by the IASC.

At the time, Virgin Australia said it had “significant concerns” that the plans would “result in an unnecessary expansion of both Qantas and Cathay Pacific’s market power, to the detriment of the travelling public”.

In reaching its verdict, the IASC agreed with Virgin Australia’s concerns, saying that the likely public benefits would be “substantially outweighed by the likely public detriment that would follow from the proposed variation”.

Although this is a draft decision, it came into effect on 24 May 2019. Public comments are being invited until 7 June.

According to OAG Schedules Analyser, Cathay Pacific is the largest carrier operating between Australia and Hong Kong. For the week commencing 27 May 2019, it has a 63.8 percent capacity share of the seats available, followed by Qantas at 24.0 percent and Virgin Australia at 12.2 percent.