[2018] IASC 235 and [2018] IASC 236

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The Route: Japan
The Applicant: Qantas Airways Limited
 (ABN 16 009 661 901)
Decision: [2018] IASC 235
Variation of: [2002] IASC 102
Public Register: IASC/APP/201860
Decision: [2018] IASC 236
Variation of: [2014] IASC 120
Public Register: IASC/APP/201861

The Commission’s delegate varies Determinations [2012] IASC 102 and [2014] IASC 120 to permit the use of the capacity on the Japan route for code sharing between Qantas and LATAM. The permission is valid for the duration of the varied determinations commencing from 1 November 2018.

1 The application

1.1 On 16 October 2018, Qantas Airways Limited (Qantas) applied to the International Air Services Commission (the Commission) to vary Determinations [2012] IASC 102, as amended, and [2014] IASC 120 to enable LATAM Airlines Group S.A. (LATAM) to code share on flights operated by Qantas on the Japan route starting from 1 December 2018. Qantas provided, on a confidential basis, a copy of its code share agreement with LATAM made on 1 August 2014.

1.2 Determination [2012] IASC 102, as amended, allocates to Qantas unlimited passenger and freight capacity on the Japan route (except to operate services to or from Haneda Airport) and is valid until 22 February 2022. Qantas and its wholly-owned subsidiary, Jetstar Airways Pty Ltd (Jetstar), are permitted to utilise the capacity. This determination was amended to permit the use of the capacity for code sharing between Jetstar and Japan Airlines for the duration of the determination.

1.3 Determination [2014] IASC 120 allocates to Qantas seven frequencies per week to serve Haneda Airport. Both Qantas and its wholly-owned subsidiary, Jetstar, are permitted to utilise the capacity. However, there is no permission for this capacity to be used for code sharing between Jetstar and Japan Airlines.

1.4 As required under section 22 of the International Air Services Commission Act 1992 (the Act), the Commission published, on 17 October 2018, a notice inviting submissions about the application for variation to enable LATAM to code share on Qantas services. No submissions were received. All non-confidential material supplied by the applicant is available on the Commission’s website, www.iasc.gov.au.

2 Relevant provisions of the air services arrangements

2.1 Paragraph 7(2)(aa) of the Act provides that the Commission must not allocate available capacity contrary to any restrictions on capacity contained in a bilateral arrangement(s). Any variation made to an existing allocation of capacity should also not be contrary to any restrictions on capacity contained in a bilateral arrangement(s).

2.2 The Australia-Japan air services arrangements provide for unrestricted capacity to operate international air services between the two countries, except to or from Haneda Airport.

2.3 Additionally, designated carriers of Australia may enter into code share services on the specified routes with a designated airline(s) of Australia, with a designated airline(s) of Japan or with an airline(s) of third countries, subject to approvals of the aeronautical authorities of both countries.

Delegate's assessment

3.1 In accordance with section 27AB of the Act and regulation 10 of the International Air Services Commission Regulations 2018, the delegate of the Commission may consider the applications by Qantas. (For purposes of this instrument, all references to the Commission include the delegate of the Commission).

3.2 Qantas’ applications seek to vary two determinations to include a condition of a kind referred to in paragraph 15(2)(e) of the Act. In view of this, the applications are transfer applications as so defined in subsection 4(1) of the Act and have been assessed in accordance with section 25.

3.3 Subsection 25(1) provides that the Commission must make a decision varying the determination in a way that gives effect to the variation requested, subject to subsection 25(2). Subsection 25(2) states that the Commission must not make a decision varying the determination in a way that varies, or has the effect of varying an allocation of capacity if the Commission is satisfied that the allocation, as so varied, would not be of benefit to the public.

3.4 Under section 26 of the Act, in assessing the benefit to the public of a variation of an allocation of capacity, the Commission is required to apply the criteria set out in any policy statement issued by the Minister under section 11.

3.5 In accordance with section 11 of the Act, the Minister for Infrastructure, Transport and Regional Development, the Hon. Michael McCormack MP, made the International Air Services Commission Policy Statement 2018 (the Policy Statement) which came into effect on 28 March 2018. The Policy Statement sets out the criteria which the Commission is required to apply in assessing the benefit to the public of allocations of capacity.

3.6 Section 18 of the Policy Statement which specifically deals with ‘transfer applications’ such as the current applications, effectively provides that, in assessing whether the variation requested would not be of benefit to the public for purposes of subsection 25(2) of the Act, the Commission is to have regard to certain matters including the ‘reasonable capability criterion’ in section 8 of the Policy Statement and may have regard to any of the additional criteria set out in section 9 of the Policy Statement that it considers to be relevant.

3.7 Under the ‘reasonable capability criterion’ in section 8 of the Policy Statement, the Commission is to assess the extent to which an Australian carrier is reasonably capable of obtaining any licences, permits or other approvals required to operate on and service the route and of using the capacity allocated under the determination. The Commission’s delegate notes that Qantas is an established international carrier and finds that it is reasonably capable of obtaining any licences, permits or other regulatory approvals required to operate on and service the route and of using the capacity allocated on the route.

3.8 The delegate notes there are a number of major carriers offering either own-operated or code share services between various points in Australia and Japan, thus providing various travel options to consumers. Qantas, the largest operator on the route, operates up to 24 weekly services between Australia and Japan (Brisbane-Narita; Melbourne-Narita; daily services between Sydney and Haneda; Sydney-Kansai). Jetstar operates up to 21 direct services per week (Cairns-Kansai; Cairns-Narita; Gold Coast-Narita). All Nippon Airways operates direct daily services between Haneda and Sydney while Japan Airlines operates daily services between Narita and Melbourne and Narita and Sydney. Several third country airlines code share with these airlines.

3.9 In the delegate’s view, allowing LATAM to code share on Qantas-operated services between Australia and Japan will add to the number of carriers that market services on the route and is unlikely to have a detrimental impact on competition. For this reason, the delegate did not find it necessary to have regard to the additional criteria in section 9 of the Policy Statement.

3.10 The delegate finds that the matters specified in paragraph 18(2)(b) of the Policy Statement are not relevant to the variation under consideration. There is nothing to suggest that Qantas’ transfer applications involve speculative activity, and Qantas has exercised the allocation in question for a period of more than six months.

3.11 Having considered the criteria set out in section 18 of the Policy Statement, the Commission’s delegate is not satisfied that the allocation, as proposed to be varied in Qantas’ application, would not be of benefit to the public. Therefore, in accordance with section 25 of the Act, the delegate makes a decision varying the determination in a way that gives effect to the variation requested in the transfer application.

3.12 Subsection 15(1) of the Act empowers the Commission to include such terms and conditions in a determination as it thinks fit. Paragraph 15(2)(e) requires the inclusion of a condition stating the extent to which the carrier may use the capacity allocated under a determination in joint services with another carrier.

3.13 The Commission’s delegate has decided to add conditions permitting the use of the capacity for the provision of code share services between Qantas and LATAM on the Japan route in accordance with the Australia-Japan air services arrangements. In accordance with section 23 of the Policy Statement, Qantas is required to take all reasonable steps to ensure that passengers are informed at the time of booking that one or more other carriers may operate the flight.

3.14 Nothing in this decision should be taken as indicating either approval or disapproval by the ACCC. This decision is made without prejudicing, in any way, possible future consideration of code share operations by the ACCC.

4 Decision varying Determination [2012] IASC 102 allocating capacity to Qantas on the Japan route ([2018] IASC 235); Decision varying Determination [2014] IASC 120 allocating capacity to Qantas on the Japan route ([2018] IASC 236)

4.1 In accordance with section 25 of the Act, the Commission’s delegate varies Determinations [2012] IASC 102 and [2014] IASC 120 which allocate, respectively, unrestricted capacity to Qantas on the Japan route and seven weekly frequencies to serve Haneda Airport, by:

adding the following conditions to the Determinations:

  • the capacity may be used by Qantas to provide code share services with LATAM in accordance with the code share agreement between Qantas and LATAM made on 01 August 2014 and the air services arrangements between Australia and Japan;
  • Qantas must apply to the Commission for approval of any proposed variations to the code share agreement between Qantas and LATAM which would change the relevant commercial aspects of the agreement from a free sale code share arrangement to a block space, or vice versa, or if Qantas proposes to add third country routes on which the airlines will code share where Australian capacity entitlements will be used for services on that route;
  • in providing code share (or joint) services, the airlines may not jointly price and market their services, or share or pool revenues/profits on the route, unless such practices are authorised by the ACCC or otherwise by the Australian Competition Tribunal, in the event of review by the Tribunal; and
  • to the extent that the capacity is used to provide code share (or joint) services on the route, the airlines must take all reasonable steps to ensure that passengers are informed, at the time of booking, of the carrier actually operating the flight. Nothing in this determination exempts the airlines from complying with the Australian Consumer Law.

4.2 These decisions come into effect from the date of issue and are valid for the duration of Determinations [2012] IASC 102 and [2014] IASC 120.

Dated: 01 November 2018

MARLENE TUCKER - Executive Director, Delegate of the IASC Commissioners

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Last Updated: 7 November, 2018