Qantas and ANZ accord ruled out

Plans by Qantas Airways and Air New Zealand (ANZ) to pool their flights between Australia and New Zealand have been set back by Australia's competition watchdog.

The Australian Competition and Consumer Commission (ACCC) has ruled that ANZ and Qantas may not share codes and jointly regulate their capacity and fares across the Tasman Sea. With the two carriers controlling 80% of the market, the limited public benefits of their scheme would not, says the ACCC, outweigh "significant detriment to consumers in the form of higher prices and reduced travel options at key times".

The ACCC will accept comments before making this decision final, and New Zealand's transport ministry has yet to rule on the proposal. But the chances of reversing the ruling seem slight. Qantas, less than two weeks after the ACCC ruling, decided to withdraw its application to codeshare with ANZ rather than submit an appeal. Rob Fyfe, ANZ's chief executive, says the ACCC's unequivocal language and statements from its chairman "certainly don't sound like a draft position".

The death of the ANZ-Qantas proposal is not surprising. Indeed, some observers saw it as a last-gasp attempt by the two carriers after competition regulators in both Australia and New Zealand rejected a broader alliance between them in 2003.

ANZ earlier warned that it will cut capacity to Australia if the deal fails. As the stated reason for its proposal with Qantas was to deal with what it calls excess Tasman capacity - 6,300 empty seats each day, it claims - that would seem a logical next step.

The ACCC did not forbid capacity cuts it ruled that competing airlines in a concentrated market could not do it together. The decision could clear the way for Virgin Blue to add trans-Tasman capacity. It would not commit more Pacific Blue resources to this market while the spectre loomed that ANZ and Qantas might jointly control it.

The ruling may also prompt the New Zealand government to take a harder look at how much fifth-freedom traffic Emirates flies across the Tasman. New Zealand authorities have already voiced concerns about this, but shown no willingness to act, perhaps due to the pending ANZ-Qantas proposal.