Virgin says no new evidence to support Cathay-Qantas codeshare

Virgin Australia says Qantas has provided no new evidence to justify a re-assessment of its proposed codeshare with Cathay Pacific on Australia-Hong Kong routes.

As such, the airline has called on the International Air Services Commission (ISAC) to uphold a draft decision rejecting Qantas’s application for Cathay Pacific to add its CX airline code on five Qantas-operated flights a day from Brisbane, Melbourne and Sydney to Hong Kong.

The draft ruling argued the proposed codeshare arrangement was likely to “entrench and expand the market position of Qantas and Cathay Pacific, to the detriment of Virgin Australia’s competitive position and the position of any potential future entrants on the route”.

If this occurred, the IASC draft ruling said it was likely to weaken competition on the route, leading to an increase in prices and/or a reduction in other benefits to consumers.

In response, Qantas argued in its June 14 submission to the IASC the commission had reached “inappropriate conclusions” about the competitive effects the proposed codeshare would have on the market. And in further criticism, it said IASC’s assessment had “substantive flaws” and had ignored the “competitive realities of this competitive market”.

However, Virgin Australia told the IASC Qantas had not provided any new evidence to justify a re-examination of the case.

“Virgin Australia is firmly of the view that approval of Qantas’ application will not be of benefit to the public, due to the detrimental impact that it would have on competition on the Hong Kong route,” Virgin Australia said in its July 2 submission to the IASC.

“Based on logical and robust reasoning, the draft decision seeks to ensure that the competitive landscape for services between Australia and Hong Kong is not distorted by allowing the two carriers which currently dominate the route to unnecessarily expand their market power, at the expense of Virgin Australia, potential new entrants, exporters and the travelling public,”

The application dates back to early 2019, when Qantas sought regulatory approval for Cathay Pacific to add its CX airline code on 35 Qantas-operated flights a week from Brisbane, Melbourne and Sydney to Hong Kong.

The codeshare flights on these routes would only be sold as part of a through journey involving connections either beyond Hong Kong on Cathay Pacific or its regional wing Cathay Dragon to destinations in India, Sri Lanka and Vietnam, among other countries, or to other Australian domestic destinations from Brisbane, Melbourne and Sydney on Qantas.

Qantas also planned to add its QF airline code on 35 Cathay Pacific-operated flights a week from the same three Australian cities and Hong Kong.

Virgin Australia, which started flying to Hong Kong in 2017 and currently has daily services from Melbourne and Sydney with Airbus A330-200s, noted this did not require regulatory approval. Nor did any codesharing on Qantas’s Australian domestic routes or Cathay Pacific’s international services beyond Hong Kong.

Indeed Cathay Pacific and Qantas have codesharing on some of each other’s flights since October 2018, when Cathay Pacific add its CX airline code on 13 Australian domestic routes operated by Qantas.

At the same time, Qantas added its QF airline code on two Australia-Hong Kong routes (Cairns and Perth to Hong Kong) and 10 routes from Hong Kong to India, Myanmar, Sri Lanka and Vietnam operated by Cathay Pacific. Cairns-Hong Kong is ending in October.

Virgin Australia also rejected calls from Qantas for the proposed tie-up to be approved on a trial basis subject to a period of monitoring and review.

“If approval was granted for the duration of the Determination which is the subject of the application, Qantas would automatically receive the benefit of the presumption in favour of renewal, as provided under paragraph 14 of the Policy Statement,” Virgin Australia said.

“Therefore, there is a risk that an ostensibly provisional approval would amount to a permanent approval due to the presumption that would operate in Qantas’ favour.”

“It is open to Qantas to lodge a fresh application for variation in the future, if there were significant changes in the competitive dynamics on the route.

“Such circumstances may include the substantial expansion of our services to approximately match the capacity offered by Qantas, a new carrier entering the route or the expansion or liberalisation of the capacity entitlement under the Australia-Hong Kong air services arrangements.

“Until that time, approval of such a proposal is unlikely to be consistent with the Act.”

The codeshare flights are shown in bold in the table below:

Source: Qantas