Qantas shares slipped as much as 3% Tuesday before closing down 1.6% in Sydney, as investors were again left contemplating the difficulties Australia's flag carrier has faced attempting to expand into fast-growing Asian markets.
The two airlines have also experienced problems setting up their low-cost Jetstar Hong Kong joint venture, which was forced to sell planes due to ongoing regulatory delays that have kept the budget carrier grounded since its formation in 2012. Qantas has also struggled to turn a profit at Jetstar partnerships with other investors in Singapore and Vietnam amid growing competition for budget travel in the region.
Qantas and China Eastern forged the alliance deal in November during a high-profile signing ceremony at Australia's Parliament House attended by Chinese President Xi Jinping and Australian Prime Minister Tony Abbott.
However, the Australian Competition and Consumer Commission subsequently found the pair account for more than 80% of seats flown between Sydney and Shanghai, potentially allowing them to limit flying capacity and increase airfares on the key route.
In a draft decision, the ACCC said Tuesday it wanted to block the deal. It has invited further submissions from interested parties by April 8, before making its final call.
Bruce Billson, a senior Australian lawmaker, said through a spokesman Tuesday that the country had a rigorous checking system. "The ACCC is an independent regulator ... and employs comprehensive processes to engage with all interested parties," he said.
Australia is eager to stimulate the exchange of food and services such as air travel with its biggest trading partner, China, which is reducing imports of Australia's mineral and energy commodities as its economy slows and becomes less dependent on industrial production.
The countries in January opened up their skies to each other's airlines, raising the number of seats offered between major cities such as Beijing and Sydney. The quota increase, which followed a free-trade pact the two countries signed last year, would have helped cement the proposed alliance between Qantas and China Eastern.
The partnership involved coordinating flight schedules and ticket prices, while further opening up Qantas's domestic Australian network to a rising torrent of Chinese outbound tourism. It would have also helped satisfy Beijing's ambition of aggressively expanding the reach of Chinese airlines, which are facing pressure on earnings from market congestion at home.
Qantas and China Eastern are reviewing the decision and intend to try to convince the regulator of the deal's apparent benefits over the coming weeks. "New traffic rights recently granted to Chinese carriers means the competition in this market will only increase," Gareth Evans, the head of Qantas's international business, said in a statement. China Eastern wasn't available for comment Tuesday.
Source: Wall Street Journal by Ross Kelly
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