Qantas-Emirates deal cleared for take-off

In a big boost for the company, Qantas Airways (ASX: QAN) has received conditional approval for its proposed alliance with Emirates from the Australian Competition and Consumer Commission (ACCC).

The alliance will involve coordination of the airlines’ passenger and cargo transport operations and other related services.

“The ACCC considers that the alliance is likely to result in public benefits through enhanced products and service offerings by the airlines, and improved operating efficiency,” ACCC Chairman Rod Sims said.

Passengers will likely be the big winners, with increased access to a large number of existing frequencies and destinations under a single airline code, improved connectivity and scheduling, and access to each alliance partner’s frequent flyer programs. The airlines are also set to benefit, with increased flexibility to manage their fleets, and in Qantas’ case, the ability to cut costs out of its under-performing international division.

The condition that the ACCC has raised concerns over is the trans-Tasman route, where Qantas and Emirates compete against each other on four routes, and the ACCC says that the two airlines would have the ability and incentive to reduce or limit growth in capacity to raise fares. The ACCC says the airlines must maintain their current capacity on the four routes.

Domestic competitor Virgin Australia Holdings (ASX: VAH) and New Zealand’s national airline, Air New Zealand (ASX: AIZ) have previously raised concerns, suggesting any conditions imposed on specific routes has the potential to create harmful market conditions. Virgin, of course, has to be careful of how loud it objects to the Qantas-Emirates tie-up, given it is seeking ACCC approval to take a controlling stake in budget airline Tiger Australia.

Foolish takeaway

While approval of the alliance between Qantas and Emirates was expected, Qantas can now truly get on with the job of rationalising its international division and air routes to and from Europe, with the aim of returning the division to profitability.

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The Motley Fool’s purpose is to help the world invest, better.  Click here now  for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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