South African Airways (SAA) and Qantas Airlines held a duopoly on direct flights from Australia to South Africa. In 2014, Australia’s International Air Services Commission (IASC) indicated that the alliance between the two airlines would be cancelled in 2015. The IASC had previously warned the airlines to stop decreasing their flights’ capacity in an attempt to cut costs and increase load factors and fares. In response, Qantas stated that it wanted the alliance to extend for another five years or it would withdraw itself from the route entirely.

Many argue that breaking up this duopoly is a Pareto-efficient change. However, this interpretation is not correct because breaking up a duopoly makes its owners (or shareholders) worse off. Do you agree or disagree?

Explain your answer.