Air New Zealand (ANZ) and Qantas Airways are venturing into turbulent skies again with an agreement to codeshare on flights between New Zealand and Australia.

Three years ago competition regulators in both countries rejected a broader alliance between the two airlines. But now, ANZ and Qantas see better chances for approval based on a scaled-down agreement and changed conditions.

Tasman Airlines W445

Rob Fyfe, ANZ chief executive, has pushed the hardest for this codeshare. He sees it as the way to rationalise capacity. “The equivalent of 11 A320s are flying empty across the Tasman every day,” he says. He blames this excess capacity and the resulting low yields on what he calls “capacity dumping by Emirates”. The Dubai-based carrier operates fifth freedom flights across the Tasman. Capacity sharing with Qantas, Fyfe estimates, could save ANZ an annual NZ$100 million ($60 million).

Fyfe calls the Tasman both “a bloodbath” and “a strategic market” for ANZ. Twenty percent of its flight revenue comes from the Tasman, making ANZ more dependent on it than any other airline. Yet, Fyfe claims the Tasman is one of the world’s most competitive markets. ANZ flies 30% of the capacity, and carries 35% of the traffic. Qantas handles about the same.

The accord will allow both airlines to “work together on network, schedule, pricing and marketing initiatives”, says Qantas boss Geoff Dixon. The codeshare will also apply to low-cost units ANZ’s Freedom Air and Qantas’s Jetstar.

Because ANZ and Qantas control at least 70% of the trans-Tasman traffic – closer to 80% when counting Freedom and Jetstar – any capacity cutting and pricing deal could raise red flags for competition authorities. Australia’s top consumer group is already voicing concerns. Norm Crothers of the Australian Consumers Association says capacity sharing by ANZ and Qantas poses the risk of a monopoly with fewer choices for passengers and higher fares.

The deal is subject to approval by New Zealand’s transport ministry and Australia’s competition commission. ANZ and Qantas will claim that the presence of Emirates and Pacific Blue in the market precludes any significant restraint on competition by an ANZ-Qantas codeshare. As Fyfe says: “An intensely competitive market would remain, irrespective of what Qantas and ANZ choose to do.”

The tougher issue will be whether regulators consider the leisure and business sectors as separate markets. Emirates and Pacific Blue compete mostly for tourists while ANZ and Qantas dominate the trans-Tasman business market. ■


Source: Airline Business