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Air NZ-Qantas plan flies into headwind of opposition


Tuesday 26th November 2002

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Air New Zealand's planned marriage to Qantas that will create a virtual domestic airline monopoly is flying into a gathering headwind of opposition.

A vast array of interested parties from flower exporters, consumer lobbyists, travel agents to competition watchdogs were commenting today on the proposed deal and few had a good word to say.

A telephone poll by the Holmes television current affairs show was inundated with over 8000 calls of which the vast majority opposed the tie-up.

However, two unusual bedfellows lined up behind the deal -- big business, who said the marriage would help stabilise the struggling national airline financially, and unions, who back the protection of Air NZ jobs and like the promise of 200-odd new jobs.

Under the deal announced yesterday, Qantas would in three stages buy 22.5 percent of the New Zealand carrier, subject to regulatory and shareholder approval, for $550 million.

If the deal proceeds, the two airlines would have extensive code sharing arrangements and Air NZ would control flights within, to and from New Zealand.

Air NZ chairman John Palmer admitted today that part of the deal would "limit competition".

Others described it more blunt terms.

"Essentially we have a monopoly on our doorstep and a monopoly has the opportunity to lift prices as they see fit," Consumers Institute chief executive David Russell said.

As the deal stands it was clearly anti-competitive, he said. Regulators should demand concessions before it was allowed to proceed.

Mr Russell said the companies' vague promises that they would keep air fares reasonably priced were not good enough and written contracts were needed to protect travellers and others.

Commerce Commission chairman John Belgrave refused any comment on the deal but Australian Competition and Consumer Commission chairman Professor Allan Fels had no such compunction.

He had little doubt the proposal would lessen competition and said the airlines would need to convince regulators that the public benefits outweighed the anti-competitive effects.

"It will certainly need very close scrutiny," he said.

"I think it would be likely to lessen competition. I don't have a great deal of doubt about that, although we will have to talk to the parties about it," Prof Fels said.

Firstly, the airlines have to convince the Government, whose stake in the airline will be diluted from 82 percent to 64 percent, to support the deal. It has promised an answer in less than a month.

Auckland University of Technology professor Simon Milne said a similar consolidation of Canadian airlines meant consumers had lost out on pricing, scheduling, frequent flier programmes, choice and through regional airport closures.

"There is just not enough competition and prices have shot up dramatically. If you look at the average Canadian air traveller, they are being stung badly.

"I just can't see whatever way you look at it that the New Zealand consumer is going to win from this," Prof Milne said.

Financial analyst David Stone said it was strange that the Government was prepared to make a quick decision on the Qantas proposal while last year, when the airline was facing bankruptcy, it dragged its feet over the Singapore Airlines proposed bailout.

He said this deal was politically more palatable to the Government, with ethnic and cultural factors counting against the Singapore deal.

"I'm not so sure it is so palatable to people in general."

He agreed with Mr Russell that the Commerce Commission was not able to just accept behavioural undertakings.

Former Air NZ chairman Sir Selwyn Cushing said that without the Qantas, the airline would become a marginalised regional carrier.

Qantas chief executive Geoff Dixon conceded that competition would not be maintained at existing levels.

Virgin Blue has said it will oppose the deal and the creation of a monopoly would put its plans to come here and fly across the Tasman on hold.

"We will not walk into a monopoly," chief executive officer Brett Godfrey said.

Air NZ's argument is that consumers will be helped by ensuring the ongoing viability and success of Air NZ. The airline admitted that its international arm lost over $200 million last year and it was only the domestic operation that kept the airline financially aloft.

It promises a boost to tourism, an extra 50,000 tourists a year and a $1 billion economic gain over five years. Air NZ will finally get direct feeder access from Australia, which was the motivation for its disastrous buy-in to Ansett.

There would be a rationalisation of the two services within New Zealand but it said that could increase the frequency with superior timing.

Mr Palmer said that across the Tasman, where the two airlines overwhelmingly dominate, they would have the opportunity to put on dedicated freight carriers.

Political comment from opposition parties almost unanimously oppose the deal. National Party leader Bill English centred his opposition on the fact that control is virtually ceded to Qantas with just a 22.5 percent stake.

He said that the joint company to be established to run domestic and trans-Tasman operations, would be a 50:50 operation.

But Mr Palmer said the autonomy of Air NZ was the paramount concern in negotiations. Qantas will get two of nine board seats while Air NZ gets one seat at the Qantas table.

Mr Palmer said the business reality was either to keep going back to the Government for an input of capital or for Air NZ to gradually get squeezed out of international operations.

"I don't think the shareholders or the New Zealand shareholders want that," he said.

Air NZ said its new Express service within New Zealand depends on low fares and generating a bigger market. Putting prices up would cause it to fail.

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