Industry News

      Under pressure from multiple parties, Australian Competition and Consumer Commission (ACCC) approved China Eastern’s cooperation with Qantas on the condition that two airlines should boost capacity on routes between Australia and China by 21% in the next five years and report their average fares on each route per month on August 21.

      The Qantas-China Eastern alliance, which had suffered setbacks, eventually got a green light from the watchdog.

      On August 21, the ACCC disclosed its decision to approve China Eastern and Qantas’ joint business on routes between Australia and China in the coming five years, but imposed conditions on their capacity and fares.

      The cooperation plan was jointly announced by the two airlines during Chinese President Xi Jinping’s visit to Australia last year. According to their agreement, the two state-owned airlines would strengthen their cooperation in such sectors as joint marketing and airport services and further expand the market. In specific, they would conduct in-depth collaboration on major routes from Shanghai to Sydney, Melbourne, etc.

      The ACCC initially refused to approve their cooperation plan, saying they have an excessively high proportion in capacity on the Shanghai-Sydney route and monopoly behavior. Thereafter, the two state-owned airlines submitted respective files, and China, other Australian government departments and Australian tour groups also imposed pressure on the ACCC.  

      The above-mentioned the ACCC, which stands for consumers’ interests, gave a green light to the two airlines’ collaboration on August 21 on the condition that they shall boost capacity on routes between Australia and China by 21% in the next five years, and report their average fares on each route per month, which is regarded by the committee as an important joint business premise to ensure tourists’ public interests.

      Given the increasing capacity, complete airline network and fare regulations after their joint business, the two airlines’ alliance is expected to bring greater convenience to the contacts of Chinese and Australian people, and Shanghai is also expected to further enhance its position as an international airport hub although details of cooperation remain confidential. 

Qantas-China Eastern Alliance Approved with Conditions

      The Qantas-China Eastern alliance was released in November 2014 at the earliest and had not been approved by the the ACCC until August 21, 2015. According to the ACCC’s official statement on August 21, the two airlines expressed substantial sincerity in increasing flights and routes after the authority put forward a preliminary decision trending towards opposition in March 2015.

      China Eastern told the ACCC that in the next two years, it would increase flights between Shanghai and Sydney, Melbourne and Cairns during peak periods, and introduce year-round services on a new route.

      Besides, the two airlines pledged that once their joint business is approved, all flights they offer would be significantly increased on the basis of the existing codeshare agreement. Qantas, the first airline in Australia, boasts great advantages in domestic route layouts, while China Eastern possesses extensive route layouts in China by virtue of three hubs in Shanghai, Xi’an and Kunming.

      However, during the preliminary deliberation process, the ACCC stated the two airlines have an excessively high proportion in capacity on the Shanghai-Sydney route, which would drive them to reduce flights and raise airfares after their joint business is approved. This would not meet passengers’ interests. The aim of joint air route business is to improve load factors, reduce costs and increase incomes. Theoretically, such kinds of collaboration all stand a chance to reduce capacity and raise airfares.   

      Other Australian government departments and local tourism and aviation groups opposed the judgment because China is Australia’s second largest tourist’s country and fastest-growing overseas tourism market. In 2014, the number of Chinese tourists to Australia reached nearly 900,000, a 100% growth within four years.

      Under pressure from multiple parties, the ACCC finally dropped opposition on the condition that the two airlines shall boost capacity on routes between Australia and China by 21% in the next five years, namely 4% per year on average, and report their average fares on each route per month. 21st Century Business Herald noticed that the ACCC’s file explanation about the capacity increase was primarily made on the capacity increase level proposed by two airlines and in consideration of their previous capacity increase situation.

Actually, the ACCC pointed out that China Eastern plans to increase its capacity on the routes between China and Australia beyond its historical level after the launch of their joint business.

China Eastern Gets Closer to Dream of Making Shanghai a Hub

      A new air route that China Eastern is about to open has been confirmed but remains undisclosed. Market observers predict that it would be the Shanghai-Brisbane air route. According to 21st Century Business Herald, the new route is expected to open in early 2016.

      Prior to this, China and Australia signed a new aviation agreement in January 2015, urging to expand capacity on routes between China’s Beijing, Shanghai and Guangzhou and Australia’s Sydney, Melbourne, Brisbane and Perth by 18% and increase quotas in the coming two years. This provides space for an increase in capacity on China-Australia routes.

      Up to now, there are more than 20 airline operators on the routes between China and Australia. Among them, merely China Eastern, Air China, China Southern Airlines, Sichuan Airlines and Qantas offer direct flights. Yet, after the new aviation agreement is signed, other airlines such as Xiamen Airlines, Shenzhen Airlines and Hainan Airlines are also expected to join.

      With the increasingly fierce competition, the Qantas-China Eastern alliance will stabilize and expand their market shares to some extent, as well as further enhance the status of Shanghai as an airline hub. According to the plan the two airlines submitted to the ACCC, their joint business will be carried out around Shanghai Pudong International Airport. The two companies hope to build Shanghai into an entry for Australian tourists to China through their joint business.

      Making Shanghai an international airline hub is a development strategy that China Eastern has been advancing over the past few years. Previously, China Eastern once teamed up with Air France-KLM Group and Delta Air Lines with an attempt to grow Shanghai’s hub role. Yet, due to relatively limited hub operation experience, Shanghai Airport has a limited international transfer capacity. The airport ranked merely 29th in the world regarding international passenger capacity last year, which is inconsistent with China’s position as the world’s second largest aviation market. 

       However, evident changes are expected to happen in the next few years after China Eastern successively reaches cooperation agreements with Delta Air Lines and Qantas. Richard Anderson, CEO of Delta Air Lines, said China will become an important part of Delta’s business in the future. Therefore, Delta needs to make layouts as soon as possible, so does Qantas.