Australia's competition watchdog says it is leaning towards blocking a tie-up between flag carrier Qantas Airways and China Eastern Airlines because it could increase fares on the popular Sydney-to-Shanghai route.
The Australian Competition and Consumer Commission issued a draft decision proposing to refuse permission for Qantas and China Eastern to co-ordinate their operations between Australia and China under a joint agreement mooted in November.
"The ACCC considers that the agreement is likely to result in significant public detriment by giving Qantas and China Eastern increased ability and incentive to limit capacity and/or increase airfares on the Sydney-Shanghai route," the watchdog said.
The commission understands Qantas' desire to form an alliance with a Chinese airline to establish a gateway to north-east Asia, commission chairman Rod Sims said, but added there were concerns "they have chosen to do so with their main competitor on the one route between Australia and China on which Qantas operates direct flights".
The two airlines account for more than 80% of the seats flown on direct services on the Sydney-Shanghai route and are the only airlines offering daily flights.
Under the agreement Qantas would be located at China Eastern's terminal in Shanghai, making it easier for Qantas passengers to transfer China Eastern flights. It would also result in cost savings in processing passengers and freight for Qantas and China Eastern.
The commission is seeking opinions from interested parties on the draft before making a final decision. Submissions are due by April 8.