Qantas' global network has been dealt a blow as the airline's proposed five year extension of its codeshare agreement with South African Airways failed to win government approval.
The International Air Services Commission (IASC) branded the arrangement a "poor substitute for competition" and proposed that the arrangement be extended only until December 31, 2012 rather than granting the five years sought by the airlines.
The codeshare currently enables both airlines to offer combined double daily services on the Johannesburg-Sydney and Johannesburg-Perth routes at a reduced overall operating cost.
Since IASC granted short-term approval to the agreement in September 2010, the competitive environment had deteriorated significantly, it said. The year saw V Australia withdraw from the route and South African Airways reduce capacity on its Perth service.
"Over the longer term there is a greater prospect of either entry and/or more competition between the incumbent airlines for traffic which currently travels via third countries in the absence of the code share," IASC said.
Rather than ending the arrangement with immediate effect, IASC granted short-term approval to prevent disruption to both the airline and the travelling public, and to avoid any monopoly.
Qantas argued earlier this year that refusal would result in the route eventually being served by a single carrier.
However, a submission by Virgin Australia to the IASC disputed this, warning that a renewed long term agreement would actually deter new entrants.
The commission also proposed to impose a condition that both airlines maintain a combined minimum of 14 services per week for the duration of the codeshare, meaning SAA must resume daily flights after 31 December 2011. "This is necessary, in the commission's view, to prevent the airlines from reducing capacity in order to cut costs and drive up load factors and fares," IASC said.