Probe ends after airlines abandon linkup plan

Cathay Pacific and Malaysia Airlines have decided not to proceed with a joint business agreement, prompting the Competition Commission to cease its investigation.

The two airlines had proposed a "metal-neutral joint business agreement" - meaning they would share costs and revenues for all passenger flights between Hong Kong and Malaysia regardless of which of them run the actual flight.

The competition watchdog yesterday said it closed the investigation as the two said on July 31 that they would no longer proceed with the agreement.

The commission said its investigation showed that the market for passenger flight services between Hong Kong and Malaysia are "highly concentrated." The two airlines have "significant market shares" and are each other's closest competitors.

Under the agreement, the cooperation between the two airlines would include revenue sharing, network planning and scheduling, pricing coordination and joint sales and marketing, it said.

"Implementing the agreement would likely eliminate all competition between the airlines as they would effectively operate as a single entity on the routes in question," the watchdog said.

It added that the agreement may block other airlines from entering the market and competing airlines may not bring sufficient competitive constraints on Cathay Pacific and Malaysia Airlines.

Although the proposed agreement could generate some economic efficiencies and benefits if it comes into effect, the commission is concerned it would reduce incentives for the two to offer lower prices and improve their service quality, affecting passengers.

The watchdog said the agreement potentially violates the first conduct rule of the Competition Ordinance, which prevents competitors from colluding on key parameters of competition such as price, output or how they bid.

Commission chief Rasul Butt said business entities can conduct self-assessment of the legality of their agreement or conduct. They can also apply to the commission about whether an agreement could be exempted from conduct rules.

But the watchdog can initiate an investigation even if enterprises decide to consult self-assessment when there is suspected contravention of rules.

"With the pandemic behind us and the travel industry making a strong rebound, people in Hong Kong are traveling again. The routes between Hong Kong and Malaysia happen to be among the most popular choices," Butt said.

"The commission is mindful of information from public sources that the costs of travel have increased considerably after the pandemic and will be vigilant in identifying and tackling situations where anti-competitive conduct or lack of competition may be a contributing factor."

wallis.wang@singtaonewscorp.com