DOT Rejects American Airlines-Qantas Partnership
Totally didn’t see this one coming. I was surprised to see that the DOT had rejected the proposed joint venture between American Airlines and Qantas. It’s only been a little more than a year since we got the first announcement that AA and Qantas were trying to sync up. American announced service to Sydney and Qantas announced they were moving some Sydney service to SFO to give room for AA at LAX to run that route. Then, American announced service to New Zealand. All good stuff!
At the same time, they applied for the right to operate a joint venture together, asking but the US government and the Australian government to collaborate on schedule and pricing. We learned earlier today via One Mile at a Time that the US DOT had rejected their application. This was surprising in that the Australian government had already okayed the deal. Ben has the text of the DOT’s ruling, including this relevant snippet:
The Department is tentatively concluding that the proposed alliance expansion would harm competition in the US-Australasia market, in particular in the large US-Australia market. By combining the airline with the largest share of traffic in the US-Australasia market with the largest airline in the United States, the proposed alliance would reduce competition and consumer choice. Qantas is by far the largest competitor operating between the United States and Australia, and American is likely the only remaining US airline positioned to enter and expand services in a competitively significant and timely manner, given its resources and network size.
In addition to these anticompetitive effects, the Department is also concerned that the proposed alliance would not generate the public benefits identified by the Joint Applicants in their filings. For example, we tentatively find that, based upon information in the record, the proposed alliance is unlikely to grow capacity over the next five years faster than what the Department would expect based upon the historical growth rate. Additionally, many public benefits from customer service coordination could be obtained through traditional arms-length cooperation such as codesharing.
The DOT has approved a lot of things over the years (like US Airways pillaging the American Airlines I used to know and love). Given that, I was really surprised that they chose to step in here. Maybe it was Popeye syndrome:
It seems like they’ve had a soft hand approving mergers over the past chunk of years. They initially blocked the merger between American Airlines and US Airways. The airlines pushed back, using for their day in court. They ultimately “settled” with the DOT, though it felt like they got the best of it.
What Now?
Does American start trimming back service to Sydney? I don’t really see that happening. Nor do I see Qantas moving their SFO-SYD service back to LAX. I’m guessing there won’t be a lot of growth on routes to Australia going forward from either American or Qantas. American/US Airways management showed a desire to fight the US last time they had an issue. I’m curious if they’ll choose to do so here.
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