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Qantas-BA Merger Offers Passengers Few Benefits

Posted in Airline News, British Airways, QantasNo comments

AUSTRALIAN travellers can be forgiven if they are struggling to see what is in the Qantas-British Airways merger for them, experts say.

So far, the only benefits the potential partners are offering passengers are access to a bigger network and a larger frequent flyer program — but neither claim has been fleshed out with details.

The airlines were forced to announce last week that they were discussing a potential merger through a dual-listing structure, but they did not release details.

Under the dual listing, each airline would remain listed in its home country and would continue to operate under its own brand, but there would be a single management structure. This would allow the carriers to cut costs by up to 2 per cent, analysts estimate, but experts say it is difficult to see how Australian consumers would benefit.

The airlines already work together through the oneworld alliance and regulators allow them to fix prices and codeshare on the kangaroo route through a joint service agreement that has enabled BA to reduce its Australian flights to twice daily to Sydney.

“I do not think consumers will see much in the way of any changes on the kangaroo route,” said Derek Sadubin, chief operating officer at the Centre for Asia Pacific Aviation. “They might notice some more network enhancement beyond Heathrow but they have pretty much explored most of the opportunities already.”

Mr Sadubin said the airlines’ products were “pretty much blurred already” and could become more so.

“If anything, it might give consumers less certainty on which carrier they will be seated,” he said.

JP Morgan analyst Matt Crowe said consolidation would tend to transfer pricing power from consumers to airlines.

“Consumers have probably benefited from having incredibly competitive aviation markets putting in more capacity at lower prices than you would optimally do, and consolidation is a way of reversing that trend,” Mr Crowe said.

Cameron McDonald, at Deutsche Bank, said it was difficult to say how the deal would affect consumers, given that people did not yet know what the merger would look like.

The kangaroo route was highly competitive and it would be difficult for BA or Qantas to raise fares.

“Without doing any specific analysis around it, you have a number of carriers on that route who are dying to add capacity or take market share,” Mr McDonald said.

“So they have got to be a little careful in trying to exercise any pricing power … in a weakening demand environment.”

The merger plan reflects the Qantas view that greater liberalisation of international aviation agreements will unleash a wave of consolidation in the industry and that powerful airline groups will be best placed to survive.

It also addresses Qantas worries that airlines such as Emirates and Singapore Airlines, with hubs at the centre of busy international routes, have a competitive advantage.

Airlines such as Emirates, which sits in the centre of a growing network and can now offer one-stop flights from Australia to every continent, have been gradually increasing their presence in the local market.

Qantas mainline in September counted for over 25 per cent of the international market to and from Australia, down from 42.7 per cent in 1994, with Jetstar adding another 6percent. This compares with an 11.3percent share for Singapore, 9.4percent for Air New Zealand and 7.1percent for Emirates.

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