Virgin Blue fights for alliance

By Owen Hembry

Virgin Blue will keep fighting for approval of its transtasman alliance with Air New Zealand despite a knock-back from regulators, according to chief executive John Borghetti.

The proposed transtasman alliance between Air New Zealand and Virgin Blue involves collaboration on future route and product planning, code sharing and frequent flyer programme benefits.

However, the Australian Competition and Consumer Commission last week issued a draft determination "proposing to deny authorisation" for the alliance.

Borghetti, speaking yesterday at a financial services council lunch, said Virgin Blue had been invited and looked forward to providing more information to substantiate the public benefits.

"We believe a Virgin Blue-Air New Zealand alliance would deliver greater competition, cheaper fares, more flight options and better connections - and these outcomes would all benefit consumers," he said.

"The ACCC has recognised there will be advantages flowing from the alliance, including cost savings and efficiencies, but they have raised doubts about the magnitude of the benefits."

The airline's transtasman routes lost money, Borghetti said.

"We need to improve our competitive position for both corporate and leisure travellers to turn them to profit - that is what the alliance is designed to deliver."

ACCC chairman Graeme Samuel said Virgin Blue was a major competitor to Air New Zealand and there were a number of transtasman routes where the alliance raised competition concerns. "These routes account for around one quarter of passenger traffic in the transtasman market," Samuel said.

"This means that more than one million passengers per year may be adversely affected by the removal of competition between Virgin Blue and Air New Zealand." The ACCC is seeking submissions by September 24.

Virgin Group founder Sir Richard Branson, speaking to Australian broadcaster ABC's Sunday Profile, said he was baffled by the ACCC's decision and that Virgin Blue could withdraw from the transtasman market.

Qantas had alliances with airlines around the world, including British Airways, Branson said.

"All we ask the competition authorities to do is to treat Virgin Blue, which is a much smaller airline, in an equal way and allow us to create a level playing field."

Peter Harbison, executive chairman of the Centre for Asia Pacific Aviation, said an earlier alliance plan between Air New Zealand and Qantas had been approved in Australia but was turned down by authorities in New Zealand.

"At the time they had 80 per cent of the market so you think this is pretty piddly in contrast," Harbison said.

One market analyst estimated the proposed Air New Zealand and Virgin Blue alliance might account for about 55 per cent of the market.

Harbison expected the alliance to eventually be approved. "It'd be quite ridiculous if it didn't, frankly."

Virgin Blue, as part of a network review, last month said its Pacific Blue brand would stop flying domestic New Zealand routes, with the planes re-deployed to transtasman and medium-haul international routes.

"If you're not serving domestic New Zealand and you're pretty sure with a small market share you're going to lose money on the Tasman, well, go somewhere else," Harbison said.

Danielle Keighery, general manager of corporate communications at Virgin Blue, said it was not the airline's intention to withdraw from the Tasman.

"I don't want to speculate on what we'll do if it doesn't get through," Keighery said. "I think if we can focus on getting it through, that is really our main priority at this point."

Air New Zealand chief executive Rob Fyfe in May said the alliance had $20 million to $30 million of benefit to the NZX-listed airline a year, with most being revenue increases from carrying more passengers.

A spokesman for Air New Zealand said the company would respond to the concerns raised by the ACCC.

Air New Zealand shares closed up 1c yesterday at $1.29.

THE PLAN
* Air New Zealand and Virgin Blue alliance.
* Code share arrangement to cover the Tasman, plus domestic travel in Australia and New Zealand as part of a connecting journey.
* Revenue generated across the Tasman allocated between the two carriers.

WHAT NOW
* Australian Competition and Consumer Commission's draft determination proposes denying authorisation.
* Submissions are due by September 24.
* Virgin Blue and Air New Zealand will respond.

- NZ Herald

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