Australia Regulator To Terminate Qantas-China Eastern Agreement

The Australian Competition and Consumer Commission (ACCC) announced on Friday that it intends to terminate a long-standing partnership between Qantas Airways and a Chinese state-owned airline. The decision is based on allegations that the partnership could reduce competition and give the airlines an opportunity to raise fares. 

The ACCC has issued a preliminary order denying permission for Australia's national airline and China Eastern Airlines to continue their operations between the two countries. ACCC Commissioner Anna Brakey voiced concerns that the authorization could incentivize both companies to raise prices compared to what they would charge without the alliance. The ACCC first approved the agreement between the two airlines in 2015 under certain conditions, but it is now considering blocking the extension deal. The regulator stated that an agreement for coordination between two major competitors could violate competition laws.

Qantas is seeking to extend its alliance with China Eastern, which allows both companies to coordinate passenger and cargo traffic between Australia and China. China was Australia's largest tourism market before the COVID-19 pandemic, and blocking the deal would end a collaboration that Qantas has depended on for over a decade. Qantas responded to the ACCC's draft decision by stating that it will review the decision in detail and work to address their concerns before a final determination is made. Brakey noted that the key difference between the current situation and previous authorizations is a lack of evidence that the coordination would result in additional services on other routes between the two countries.

RBC Capital Markets analyst Owen Birrell suggested that this new development from the ACCC might pose a risk to Qantas' other partnership arrangements, particularly with American Airlines and Emirates. In March, the ACCC granted temporary authorization to the airlines, which will remain in effect until the carriers submit arguments to persuade the regulator not to block the deal.