Air wars: Qantas faces new threat

Qantas Airways (ASX: QAN) is believed to be under investigation for potential misuse of its market power.

The Australian Competition and Consumer Commission (ACCC) is reportedly investigating the airline, over the way Qantas has been adding extra seats on air routes in the domestic market to maintain its 65% market share, according to the Australian Financial Review (AFR).

Under competition regulations, companies with substantial market share are not allowed to use their market power for the purposes of eliminating or damaging a competitor. In September, ACCC chairman Rod Sims told The Sydney Morning Herald that he was concerned over comments made by Qantas executives about the air war with rival Virgin Australia (ASX: VAH).

The AFR reports that Qantas’s head of domestic Lyell Strambi, had previously warned that he would add two planes of capacity for every one added by Virgin.

The two domestic airlines are in a fierce battle for domestic market share, with Qantas drawing a line in the sand, stating it would do everything in its power to maintain a 65% share of the market. Qantas has also criticised Virgin over its $350 million capital raising, suggesting it was a takeover by stealth. Air New Zealand (ASX: AIZ), Singapore Airlines and Etihad Airways hold a combined stake of more than 60% in Virgin, and the capital raising could see their share rise even higher.

The Australian Shareholders Association (ASA) has also raised concerns over the capital raising and has taken the matter to the Takeovers Panel.

For its part, Virgin has threatened to take legal action over comments made by Qantas chief executive Alan Joyce. In a tit-for-tat war, Qantas is reportedly considering referring Virgin to the Anti-Dumping Commission.

Foolish takeaway

The ongoing war shows the intense pressure both Qantas and Virgin are under. With the air war likely to damage both airlines’ earnings, Investors are unlikely to be the winners.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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