Aust Govt supports AirNZ alliance, but wants more rules

By NZPA

Monday 10th March 2003

Undertakings by Qantas and Air New Zealand so far are insufficient to offset the anti-competitive effects of their proposed alliance, the Australian federal government says.

However, in its submission to Australia's commerce regulator, the government's Department of Transport and Regional Services says it supports Qantas taking a 22.5 percent share in Air NZ as long as adequate undertakings are instituted to protect competition.

The department said it was important Qantas had the "scope to grow", including the acquisition of competitors to ensure its longer term growth.

"This is of particular importance with its competitors being either government-owned or government-subsidised."

The department said it was in Australia's best interest to have at least one of the surviving airline groupings based in the Pacific and built around a strong and efficient local carrier.

"A partnership between Qantas and Air NZ can be seen as a first step in this direction, however the proposed SAA (Strategic Alliance Agreement) between Qantas and Air NZ has anti-competitive elements within its current form.

"In particular it is important for the government to make sure that there is enough competition on domestic and international routes to keep Qantas/Air NZ efficient and provide consumer choices and benefits."

The department said the proposed $NZ550 million alliance would dominate traffic on two of five of Australia's major international routes and carry nine out of 10 passengers on the trans-Tasman route -- and nearly two out of every three passengers on the United States route.

The proposed joint pricing and scheduling arrangements would significantly reduce competition on critical trade routes, it said.

"Concerns exist regarding the anti-competitive aspects that will need to be mitigated by undertakings more substantial than those presently suggested by Qantas and Air NZ.

"An expiry and review mechanism should also be incorporated into any authorisation by the ACCC (regulator Australian Competition and Consumer Commission). Such access would increase opportunities for competition but without domestic networks at either end, other carriers would not seriously threaten Qantas' financial position."

The department recommended the two airlines should have to provide for publication statistics "by which competing airlines may make informed decisions on entry on routes only served by Air NZ and Qantas".

Meanwhile, Qantas' major trans-Pacific rival United Airlines has not opposed the alliance, but has asked for undertakings to enable it to compete on the non-stop Australia-US services.

"Indeed, United believes that the proposed alliance is inevitable. The local Australia/NZ market is too small and remote to sustain service by more than one network carrier, as the certain collapse of Air NZ in 2001 without government intervention demonstrates."

United said it wanted Qantas to revise its pro-rata agreement which sets out conditions for carriage on each other's services to offer United more favourable terms.

United also wants full access to Qantas' seat inventory so it can sell tickets to people travelling to and from interior Australian destinations that Qantas serves.

The ACCC's deadline for submissions is now closed and a final decision on the application is expected in June or July.

The New Zealand Commerce Commission is also considering the deal and it expects to issue a draft determination on two of the main aspects early next month. It will then call for more submissions and a final decision is expected from it in late June.

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