Having agreed to maintaining, with the possibility of increasing, the number of seats for sale on certain routes, Qantas Airways (ASX: QAN) and Emirates will receive the final approval by the Australian Competition and Consumer Commission (ACCC) and other international regulators required to begin their landmark alliance.
The ACCC was concerned that the two airlines may push airfair prices upward by reducing the number of some services, but the two airlines have committed to conditions to appease this fear. Should profitability and the average number of occupied seats per aircraft reach an agreed amount, a higher number of seats will be made available.
Prior to the final approval announcement, there were also fears in the industry that the profitability of trans-Tasman services would be abolished. While the Air New Zealand (ASX: AIZ) and Virgin Australia Holdings (ASX: VAH) alliance also runs services on the route, it was feared that the ACCC would require the two alliances to commit to capacity growth – having more planes would mean less passengers per flight and hence, higher costs.
Whilst one of the initial conditions of the ACCC was that Qantas and Emirates were to maintain all services between Melbourne, Sydney, and Brisbane to Auckland as well as Sydney to Christchurch, a more flexible capacity commitment has been made. The new commitment could allow Qantas to remove one of its own Sydney-Auckland services to instead sell tickets on Emirate's same service – meaning that Qantas could free up one of its aircrafts to begin a new service.
Qantas and Emirates have also agreed to make roughly as many flights from Australia to Singapore as on the trans-Tasman route. It is likely that Emirates will need to replace its Boeing 777 with the Airbus A380 for the Melbourne and Brisbane to Singapore service, in order to increase seating capacity by almost 40%.
Foolish takeaway
With the alliance expected to be granted approval from the competition regulators this week, Qantas shareholders will be expressing a sigh of relief. After a volatile few years on the market for Qantas, the Emirates alliance could lead to great results for the Flying Kangaroo and its investors alike.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.
