Qantas Airways has baled out of an ambitious deal with American Airlines that would have increased trans-Pacific traffic for both carriers, after a United States regulator blocked it on competition grounds.
The US Department of Transport earlier this month tentatively knocked back an expansion of the airlines' alliance, announced in mid-2015, because it would have tied up about 60 per cent of traffic between Australia and the US, unfairly concentrating market power.
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The Flying Kangaroo and American initially said they would appeal the decision to block the proposed joint venture, under which the airlines would have split marketing expenses and shared the revenue on each others' flights between Australia and New Zealand and the US.
But on Tuesday the airlines said they would withdraw their application for anti-trust immunity because they could not respond to the DoT's decision within the 14 days provided and were denied an extension.
"This is an extremely disappointing sequence of events for Qantas and American Airlines, as well as for customers, and ultimately for trade between the United States and Australia," a Qantas spokeswoman said.
"It follows approval from Australian and New Zealand regulators on the basis that our expanded partnership involved no detriment and would deliver significant benefits for consumers."
The airlines had already started new routes as part of the deal, with Qantas flying to Dallas and from Sydney to San Francisco, and American flying between Sydney and Los Angeles.
Qantas was now "considering our options" on the Sydney-San Francisco route and assessing its trans-Pacific network, the spokeswoman said.
![Qantas said the deal would have increased traffic from the US by 9 per cent.](/web/20161129032621im_/http://www.theage.com.au/content/dam/images/1/m/7/x/p/w/image.related.articleLeadwide.620x349.gszkav.png/1480388129412.jpg)
Qantas last year said the deal would increase its Australia-US mainland capacity by 9 per cent but on Tuesday said the deal's collapse would have no material impact on earnings.
American Airlines spokesman Matt Miller said the DoT's decision, 17 months in the making, was a significant departure from previous rulings.
"Delta and Virgin Australia, and United and Air New Zealand have anti-trust immunity in their joint ventures, so that's a significant competitive advantage for those two alliances and that's what we were seeking," Mr Miller said.
"With that opportunity we would have been able to compete more effectively and increase consumer benefits in the market as well."
Qantas and American's code-share arrangement, struck in 2011, will remain in place.
Merrill Lynch aviation analyst Matthew Spence said the collapse of Qantas' plans was "unhelpful, but it's not any bigger than that".
"They would have hoped to get [anti-trust immunity] given that Virgin and Delta have got the same agreement, but AA and Qantas have much greater market share," Mr Spence said.
Mr Spence said the best indication of the impact it would have on Qantas was to look at the share price, which on Tuesday had fallen 2¢, or 0.6 per cent, to $3.17 by 1pm.