Australia supports proposed Qantas-China Eastern Airlines alliance

CANBERRA - The Australian government said it "sees no reason" why the proposed alliance between China Eastern Airlines and Australian carrier Qantas should be stopped after slamming its competition regulator for blocking the move, local media reported on Tuesday.

The Australian Competition and Consumer Commission (ACCC) hinted last month it would not approve the plans by saying in a draft decision the alliance would give China Eastern and Qantas " an increased ability and incentive to limit capacity and/or increase airfares" on the Sydney-Shanghai route.

However, in a submission to the ACCC following the draft ruling, the Department of Infrastructure and Regional Development said the proposed alliance was "positive for the Australian economy and is consistent with the Australian government's aviation policy settings".

In its April 8 submission, the department said the ACCC had " too narrowly focused on the Sydney-Shanghai route rather than at the operations of the wider Australia-China market".

"The department sees no reason to deny the proposed coordination agreement," it said.

"The benefits that will flow to Australia's aviation industry, Australian consumers, the Australian tourism industry, and the Australian economy as a whole are exactly the benefits the Australian Government's aviation policy is designed to support."

The ACCC had expressed concern that the two airlines currently operate 83 percent of all seats on the Sydney-Shanghai route and did not consider Air China, another airline on the route, likely to increase its market share.

"The ACCC considers that the lessening of competition on this route that will arise as a result of the Proposed Conduct is likely to outweigh any of the public benefits likely to arise," it said.

The department discounted this and pointed to increased exposure to secondary Chinese cities that would be available if operating out of Shanghai.

"The commercial reality is that in any given market a hub airline will have significant market share on routes to and from that hub," the department said.

"It is also important to note the updated service arrangements provide an extra 33,500 seats of capacity between Australian gateway airports and Chinese locations outside Shanghai, Guangzhou and Beijing, further increasing opportunities for Chinese carriers to service Australian gateways from a variety of destinations.

"It would result in added benefits by boosting Australia's tourism industry through increasing the ability for both airlines to market and sell tickets to Australian destinations."

The support came as the federal government agreed to allow Chinese visitors multi-entry visas that are valid for three years.