New Zealand travellers once again have reason to be grateful to Australia's Competition and Consumer Commission. The feisty watchdog has issued a draft determination denying authorisation for an alliance between Air New Zealand and Virgin Blue in the transtasman market. As should be the case, it has placed the public interest above the airlines' interest in boosting their bottom-line profits.
Air New Zealand and Virgin Blue proposed an arrangement that would enable them to book people on to each other's flights, share revenue and collude on capacity, routes, scheduling and fares. In most respects, this resembled a previous plan for a codeshare tie-up with arch-rival Qantas, which was also rejected, in the first instance, by the Australian tribunal. Its thumbs-down is especially important this time because approval of the airlines' proposal on this side of the Tasman lies with the Ministry of Transport. It reports to a minister in a Government that owns the bulk of Air New Zealand.
The airlines have always maintained they were confident their plan would pass muster. It is hard to see why. Such is the gulf in thinking that it seems highly unlikely that the Australian commission's final verdict will be any different. The previously rejected arrangement with Qantas would have resulted in the pair commanding 80 per cent of the Tasman market. Consequences for competition and passenger interests would have been inevitable.
Air New Zealand and Virgin would together have 55 per cent of the same market in a set-up that, according to them, would allow them to compete more effectively against Qantas and its subsidiary, Jetstar, which have much of the rest. The same valid public interest fears arise. Understandably, the Australian commission was not convinced the arrangement would be more competitive than a scenario where Virgin Blue and Air New Zealand continued to operate independently.
In concrete terms, the would-be partners claimed they would deliver cheaper airfares, increased frequency, better connections and expanded lounge access. The ACCC was, again, unconvinced, saying it had doubts about the magnitude of those benefits. Indeed, reduced competition in a market is rarely a recipe for increased public benefits. The commission calculated that more than a million passengers a year might be harmed by the removal of competition between Virgin Blue and Air New Zealand.
That damage may be limited in flights from Auckland because the presence of Emirates and other fly-through airlines creates a high degree of competition. But such would not be the case at Dunedin, where the two airlines account for all the available transtasman seats. They also have a large collective share of the market between New Zealand and Cairns. It is on such routes that the constraint posed by Pacific Blue is important. How long this remains is questionable, given the Australian airline's withdrawal from the domestic market. That, however, could not be a concern of the Australian watchdog. In no way could it approve an anti-competitive arrangement in the interests of sustaining Pacific Blue as a transtasman operator.
The continued thwarting of Air New Zealand's aspirations by the Australian watchdog illustrates the way in which the aviation industry is never settled. Its transtasman operations continue to be marginally economic, and it is understandable that it is casting around for ways to achieve better profitability. But this should never be at the expense of the travelling public. The airline survived the rejection of its bid to link with Qantas, despite its predictions of doom and gloom at the time. It can be equally effective without a cosy, anti-competitive arrangement with Virgin.