Competition authorities have strongly condemned the proposed Air New Zealand-Qantas alliance in their draft decisions.

Both the New Zealand Commerce Commission (NZCC) and Australian Competition and Consumer Commission (ACCC) disagree with the airlines on most of their assumptions, and declare that the anti-competitive effects of their proposed alliance far outweigh its benefits.

They also dispute predictions that Air New Zealand (ANZ) would lose a "war of attrition" with Qantas in the absence of an alliance. The more likely scenario, the NZCC says, is: "Air New Zealand standing alone in the short term, while seeking, and perhaps in the medium term gaining, an alternative alliance with another airline". The ACCC observes that "ANZ is currently competing very strongly with Qantas", and is "predicting very good financial results" for 2002/03. "These projections were recently re-affirmed even in the face of the challenging conditions," it adds.

The ACCC is more scathing than the NZCC in its condemnation of the alliance. "Overall, we have a proposal that is highly anti-competitive and of little benefit to the public," says Professor Alan Fels, ACCC chairman.

Fels adds that even if Virgin Blue started flights to New Zealand, the discount carrier could only play a small role against the dominant ANZ-Qantas pairing. This undercuts an argument by the two airlines that other entrants could offer competitive alternatives.

Despite these setbacks, ANZ and Qantas are trying to sound optimistic. ANZ chief executive Ralph Norris claims the draft decisions help focus the issues for the next round. The NZCC has scheduled a four-day conference in May to consider further submissions, and is inviting the airlines to offer "other undertakings or conditions" that might change its view.

Both the NZCC and ACCC promise final decisions around mid-year.

Source: Airline Business