United Airlines has not helped approval ratings for the proposed alliance of Air New Zealand (ANZ) and Qantas Airways by quitting the Auckland-Los Angeles route.

Withdrawing from New Zealand at the end of March as part of its Chapter 11 cost-cutting, United has handed ANZ and Qantas a duopoly on New Zealand-US nonstops that would, under their proposed pact, become a monopoly. Until now United has flown 19% of the seats in this market.

United's retreat is of most concern to New Zealand - the carrier will maintain its double-daily flights to Australia - but its pullback also worries the Australian Competition and Consumer Commission (ACCC). Ross Jones, ACCC commissioner of mergers and acquisitions, says: "Competition concerns are enhanced by the fact that there is now less competition across the Pacific."

The ACCC and New Zealand Commerce Commission must approve the ANZ-Qantas alliance before it can take effect. Both agencies could issue draft decisions by April, but hearings and consultations mean final decisions will come no earlier than July.

The appearance of transpacific competition has been further shaken by Air Pacific's formal appearance in the ANZ-Qantas alliance application. Competition authorities told the Fiji flag carrier that it would be considered part of the group because it is 46% owned by Qantas. Without approval from Australian and New Zealand regulators, it could face antitrust exposure on joint decisions over capacity or pricing.

It may be more form than substance, but apart from one weekly flight by Air Tahiti Nui, Air Pacific is the only other South Pacific carrier linking New Zealand and the USA. By joining the alliance a week after United's withdrawal announcement, Air Pacific's move underscores how much consolidation could replace competition in this part of the world. David Huttner, commercial manager of Virgin Blue, says: "It's just stitching it up for the competition."

ANZ and Qantas have put their best spin on United's retreat, claiming that it shows why they need an alliance. Peter Gregg, acting Qantas chief executive, says United's decision reflects the same harsh realities that prompted ANZ and Qantas to join forces. "Everyone should be wary of trying to socially engineer an artificial competitive outcome in the face of this reality," Gregg warns.

Source: Airline Business