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Virgin Australia protests scope of Qantas and Cathay Pacific code share

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February 1st 2019

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Virgin Australia is not happy. Its efforts to break into the lucrative China market are being stymied by a developing love affair between former frenemies, Qantas Airways and Cathay Pacific Airways. Read More »

The second Australian international carrier launched Melbourne-Hong Kong in 2017 and restored its Sydney-Hong Kong route last year after forging a code share agreement with Mainland-owned Hong Kong Airlines. At the time, Hong Kong Airlines operated to Queensland’s Gold Coast. It cancelled the route last October.

From the same month Qantas and Cathay have activated a new code share partnership. Qantas has added its code to Cathay Pacific and Cathay Dragon destinations from Hong Kong to 10 cities in India, Myanmar, Sri Lanka and Vietnam and on Cathay long-haul flights from its home hub to Perth and Cairns.

In turn, Cathay has placed its code on 13 routes of the Qantas’ domestic network. That in itself was a surprise to some. Both carriers are oneworld alliance members but their relationship has had its strains.

Cathay did not appreciate the partnership Qantas forged with Emirates Airline while the Australian carrier was far from impressed when Cathay mounted a campaign that contributed to ending Qantas plans to establish a low-cost carrier subsidiary, Jetstar Hong Kong. All, it now appears, has been forgiven.

In January, Qantas requested approval from Australia’s Air Services Commission (ASC) to vary its agreement with Cathay. It “proposed that Cathay Pacific will offer code share services on flights operated by Qantas on the Hong Kong route from 31 March 2019”. Exactly what it is asking for is not known, with the submission only saying that “a copy of the confidential code share agreement between Qantas and Cathay Pacific will be provided separately to the Commission”.

Virgin has reacted vehemently to the request. It is right to be concerned about its scope. In its own submission to the ASC, it said it is the only other operator of flights between Australia and Hong Kong.

Virgin Australia holds “significant concerns” about the proposed variation of the Determination that will result in an unnecessary expansion of both Qantas and Cathay Pacific’s market power to the detriment of the travelling public, it said.

“Qantas and Cathay Pacific dominate the Hong Kong route with a combined frequency share of 88% and a combined seat capacity share of 90%,” said Virgin. “In the 12 months ending October 2018, both airlines recorded passenger load factors exceeding 80% and together carried 92% of all passengers travelling between Australia and Hong Kong.

“Virgin Australia and Hong Kong Airlines carried the balance of passengers on the route, recording passenger load factors of 66% and 61% respectively during the period. Hong Kong Airlines withdrew from the Hong Kong route in October 2018, leaving Virgin Australia as the only other competitor in the market.”

Virgin said the Qantas application did not provide sufficient information to allow interested stakeholders, including Virgin Australia and the Australian Competition and Consumer Commission, to properly assess and comment on the potential impact of the expansion of its code share arrangement with Cathay.

“Notwithstanding the paucity of information in the Qantas application, any strengthening of cooperation with Cathay Pacific is likely to increase the market power the two carriers individually and collectively hold on the Hong Kong route. This would inevitably diminish competitive forces in the market and may lead to higher airfares and reduced choices for customers, with corresponding implications for Australian tourism and trade,” Virgin Australia said.

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