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New airline plan won't fly past regulators

By Nick Stride

Friday 16th May 2003

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Air New Zealand and Qantas' revised alliance plan has no chance of persuading competition regulators to change their minds, aviation experts said yesterday.

The airlines last week presented a second and final set of undertakings to the Australian Competition and Consumer Commission (ACCC) and are expected to submit essentially the same concessions to the Commerce Commission next month.

Market watchers dismissed the procedure as a charade, saying the airlines were well aware only political intervention could get the alliance past competition laws.

"The gap between the ACCC and the Commerce Commission and what is proposed by the airlines is so great that it can't be filled by any new submissions they're going to make," Centre for Asia-Pacific Aviation managing director Peter Harbison said.

"The two airlines are trying to span it with a political bridge."

However, ACCC chairman Allan Fels said "from a quick look" there appeared to be significant new considerations.

The carriers put forward a list of 10 undertakings they would commit to in order to lessen the alliance's damage to competition.

Of these, two ­ providing facilities and services to a new entrant, and new transtasman services ­ were identical to undertakings given in the first, rejected proposal.

A further two, on tourism promotional spending and freight services, merely added detail to original proposals. The original undertaking not to increase capacity on any route for one year after a new entrant announced it would start flying it was extended to 18 months.

New features are restrictions on Air New Zealand's low-cost subsidiary Freedom Air flying from Australian to New Zealand main hubs, or between New Zealand main hubs, and capacity reduction restrictions on those routes.

The airlines also offered to lease up to four B737-300s to a new entrant, and undertook not to increase prices on regulated transtasman city pairs beyond an airline "producer price index" for market and fare segments to be agreed with the commission.

Tim Brown of Infratil, the spokesman for a group of New Zealand companies opposing the alliance, said there were up to 12 different fares on each flight so any form of voluntary fare-fixing could not possibly be policed.

He said the new proposals would falter on the inability of the airlines to grasp that the regulators' fundamental problem was with the idea that the carriers could be allowed to "divvy up the market" between themselves and, if necessary, Virgin Blue.

"I don't think any intelligent, common-sense regulator is going to look at some sort of voluntary code of practice and see it as anything other than a joke," Mr Brown said.

Mr Harbison said the pricing offer looked like the cost-plus pricing formula of Australia's "two airline" policy of the 1970s and 1980s.

Observers said the offer of leased 737s was unimpressive. With the global slowdown in air travel the world was awash with aircraft for lease.

As the revised submission noted, Virgin Blue, the most likely entrant, recently announced plans to acquire at least 10 737-800s with options for another 40.

Qantas has already asked the ACCC for a speedy decision so it can appeal to the Australian Competition Tribunal, a quasi-judicial body with the power to overturn ACCC decisions and make any ruling it deems fit.

Applications need to pass the tests set out in the Trade Practices Act and the tribunal need take no account of government policy.

Both the Australian and New Zealand governments have said they support the alliance.

If the commissions, and the tribunal, finally reject the deal the governments could yet effectively bypass competition law and legislate to authorise it, as the New Zealand government did with the creation of dairy giant Fonterra Co-operative Group.

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