Planned teaming goes back to drawing board after regulators deem it anti-competitive

Air New Zealand and Qantas last week were forced to consider what further concessions they can make to gain approval for their alliance. In draft determinations, the Australian and New Zealand competition authorities have rejected the alliance plans as being "very anti-competitive and not in the public interest".

The partners say they will continue to pursue an alliance, despite Australian Competition and Consumer Commission (ACCC) chairman Professor Allan Fels saying it is "very hard to envisage what further undertakings can be offered to meet our concerns".

Under the deal, Qantas would take a 22.5% US$300 million stake in the New Zealand carrier, resulting in extensive co-operation on services. Both had argued that an alliance is the only way to prosper.

Although the partners had expected the deal to be rejected at the draft stage, the competition authorities did so comprehensively, determining in particular that the alliance would be anti-competitive on routes across the Tasman. Qantas and Air New Zealand have trans-Tasman market shares of 39% and 52% (plus Air New Zealand's Freedom Air) respectively.

The alliance was also determined anti-competitive in the Australia-North America market - a segment from which Air New Zealand recently withdrew, leaving Qantas, Air Canada and United Airlines - and would also allow Qantas to increase its domestic market share.

The New Zealand Commerce Commission (NZCC) says that the alliance would also result in reduced competition in New Zealand provincial passenger markets, the New Zealand-Pacific, Asia and USA passenger markets, and air freight markets.

The ACCC rejected the partners' earlier concessions to appease anti-competitive concerns as "heavily qualified, difficult to enforce and requiring monitoring".

The NZCC believes that higher fares would result from the alliance and estimates that public benefits will only be NZ$30-46 million a year - Qantas and Air New Zealand had estimated the benefits to be NZ$236 million by the third year.

Qantas chief executive Geoff Dixon accused the commissions of having "completely ignored the ongoing crisis in the global aviation industry". Air New Zealand believes that the issues are "not insurmountable".

Aviation analysts were surprised at the strength of the commissions' views. The Sydney-based Centre for Asia-Pacific Aviation, for example, says: "It is unlikely that they will be able to achieve a degree of enhancement of competition acceptable to the two bodies."

The partners have until 9 May to lodge submissions, with final determinations expected in June.

Source: Flight International