The concerns that Virgin Australia have raised with the ACCC over an application by Qantas for interim approval of its proposed partnership with Emirates are a reminder that the plan raises questions that are outside the scope of the powers of the competition authority to assess, and probably beyond the will of parliaments to consider.

Virgin Australia’s submission is primarily directed at the risk of detrimental effects on domestic and international airline competition in the Australian market if in its view, approvals are issued prematurely, before a much more informed review process can be undertaken.

But the ACCC doesn’t appear to have the specific powers to consider geo-political risk, in which the future capacity of Qantas to serve the market might be affected by conflicts or unrest that would take out or severely impair the Emirates operation which is critically dependant on its Dubai hub.

These risks also apply to the Virgin Australia alliance with Etihad, which operates its similarly structured but smaller hub from Abu Dhabi, a mere 99 kilometres from Dubai and also within the United Arab Emirates.

It isn’t surprising, nor it is a criticism, that the ACCC doesn’t seem to be able to consider such worrying hypothetical issues.  It is a competition tribunal,  dealing with competition law. Government has to deal with broader national interest issues, whether or not it is totally supportive of free trade and minimal discretion in competition outcomes other than the legal boundaries for the rules of competitive engagement.

Similarly, the ACCC doesn’t seem to have any basis for exploring the other ‘what if’ questions, such as ‘what if the Qantas-Emirates partnership doesn’t work as the partners intend?’

Or, as Qantas anticipates in its submission, the act of setting up the partnership causes new competitive responses that benefit the public interest, to which observers might reasonably also ask, causes responses that prove even more harmful to Qantas interests than its own dire predictions about how it would suffer harm if the partnership with Emirates isn’t  approved.

The Qantas-Emirates partnership might not only give rise to responses, say from China carriers, with or without the participation of Singapore Airlines or Cathay Pacific, that could not only undermine its intended benefits, but severely impact or distort the future prospects of Virgin Australia, and its various partnerships with Etihad, Singapore Airlines, Air New Zealand and Delta.

This is the problem with the ACCC process, and with similar applications to other competition authorities dealing with other airlines in other parts of the world.

Qantas-Emirates, like Virgin Australia-Etihad, requires the ACCC to think within a much smaller space than is actually occupied by the totality of the air transport industry and the dozens of other airlines, some of them new and with generous backers, who will seriously test the capabilities of Qantas and Virgin Australia, no matter what happens to their current or proposed partnerships.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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