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Air NZ/Virgin Blue trans-Tasman alliance approved

Thursday 16th December 2010

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Air New Zealand is expecting a decision within days from Transport Minister Steven Joyce on its proposed tie up with Virgin Blue on trans-Tasman routes, following conditional approval from Australian regulators.

The Australian Competition and Consumer Commission (ACCC) today conditionally approved for three years a proposal under which the airlines would coordinate a range of issues including pricing, revenue management, schedules, capacity and routes.

In September, the ACCC issued a draft determination proposing to deny authorisation for the alliance, but today it said it had since received a substantial amount of information from the applicants and interested parties about the likely public benefits and detriments.

It was now satisfied the identified public benefits, in combination with the conditions being imposed, were likely to outweigh any public detriment from the alliance, the ACCC said.

But the conditional authorisation was only for three years, rather than the five years sought.

Air New Zealand chief executive Rob Fyfe said he was pleased formal approval had been given recognising the benefits the alliance would bring to the company's customers.

"I would like to thank the ACCC for its thorough consideration of the issues and coming to a determination that favours customers and will see the Tasman market continue to grow," Mr Fyfe said.

A decision on the alliance application from Mr Storey was expected within the next few days.

Previously Mr Fyfe had said the ACCC's September draft decision would threaten Air New Zealand's future.

"If we are to earn the right to continue to fly and grow, then the deal with Virgin Blue is a central plank of that strategy," he said said at the time.

The ACCC's preliminary finding in September had represented a threat to that strategy, "in effect, a threat to our future".

Today ACCC chairman Graeme Samuel said the regulator considered the alliance was likely to benefit passengers in such areas as route choice and frequencies, and potentially lower fares as a result of cost savings and efficiency improvements.

"The ACCC is still concerned that the alliance may affect competition on a number of routes between Australia and New Zealand, particularly routes involving Wellington," Mr Samuel said.

"However, the ACCC has imposed a number of conditions on authorisation which are designed to address these competition concerns."

Broadly speaking, the conditions required the airlines to maintain and increase the number of seats flown on routes where the ACCC had identified competition issues. The conditions were intended to restrict the ability of the alliance to raise fares on these routes by limiting capacity.

Air New Zealand shares were up 4c to $1.47 in early afternoon trading.



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