Qantas and American Airlines will fight a US transport regulator's decision to tentatively block an expansion of the pair's alliance which would have seen them fly more between Australia and the United States.
The Flying Kangaroo and the US airline struck a deal in mid-2015 for Qantas to fly between Sydney and San Francisco and for American to fly between Sydney and Los Angeles, connecting to a network of destinations on either end, in a tie-up that was to open doors to new markets for both.
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Qantas cash splash
Qantas has broken a seven-year dividend drought and is splashing cash with staff and investors.
But the US Department of Transportation issued a show cause order on Friday tentatively denying the airlines' application to expand their alliance because it could result in an unfair concentration of market power.
If the deal was allowed to go ahead, Qantas and American would control about 60 per cent of traffic between the US and Australia, the DoT said in its decision, noting that consumers would have few other competitive options on the under-serviced route.
American has pledged to fight the decision, which it said was "a significant departure from prior DoT decisions, which have long recognised the pro-competitive benefits of combining complementary international networks."
"Other airlines have the significant competitive advantage of antitrust immunity in the US-Australasia market. With the same opportunity, American and Qantas will be able to compete more effectively and increase consumer benefits in the market," American said in a statement
American and Qantas have 14 days to file an objection to the regulator's show cause order.
Hawaiian Airlines had objected to the deal, arguing to the regulator that it would create a market environment "inhospitable to competition from independent carriers", while any benefits to the public would have been "elusive at best" because Qantas and American were already partners.
Hawaiian's chief executive Mark Dunkerley applauded the DoT's tentative ruling, saying in a statement that it "recognised the importance of small independent carriers in maintaining competition, which is good for the industry and ultimately consumers".
Qantas said it was disappointed with the decision to block the deal, which had been "overwhelmingly" supported by the Australian Competition and Consumer Commission and the New Zealand Minister of Transport.
"The Trans-Pacific is a highly competitive market served by a number of carriers and the partnership is one that can support and strengthen the economic, cultural and tourism ties between Australia and New Zealand with the United States," a Qantas spokeswoman said in a statement.
Qantas, when first announcing its plans in 2015, said the deal would drive a 9 per cent net increase in traffic on Australia-US mainland routes.
It's not the first time a regulator has gotten in the way of Qantas' expansion plans. In 2015 the ACCC initially knocked back an alliance with China Eastern before agreeing to it five months later, after the airlines proved the benefits of the tie-up to consumers.
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