Australia's antitrust regulator has given approval for Air New Zealand and Virgin Australia to extend their trans-Tasman alliance for three years on the condition they agree to maintain capacity on some secondary routes.
In a draft decision, the Australian Competition and Consumer Commission said weighing up the likely public benefits and detriments of the alliance "was finely balanced" and the regulator was only able to form a preliminary view that the public would be better off by imposing conditions.
The airlines will also be required to provide key performance data to help the regulator assess whether the alliance is having any adverse effects on competition generally, it said. The ACCC said given the dynamic nature of the aviation industry it couldn't agree to a five-year extension the airlines had requested.
"Without the alliance, Virgin Australia's trans-Tasman operations would be more limited than its key competitors and Air New Zealand is likely to be at some competitive disadvantage to the Qantas-Jetstar/Emirates alliance due to its weaker sales presence and more limited access to the domestic market in Australia," the regulator said in its statement.
The alliance probably wouldn't reduce competition on key trans-Tasman routes of Sydney/Melbourne and Auckland, Sydney/Melbourne and Wellington and Sydney-Christchurch.
But the ACCC said it was concerned about competition between Christchurch-Melbourne, Christchurch-Brisbane, Wellington-Brisbane, Queenstown-Brisbane, Auckland-Gold Coast, Dunedin-Sydney, Dunedin-Melbourne and Dunedin Brisbane and wants assurances capacity will be maintained.
The ACCC is now seeking submissions on the draft before making a final decision, it said.
Last month, Air New Zealand lifted its stake in Virgin to about 23 per cent from 19.99 per cent in a series of off-market transactions, while indicating it may seek to hold as much as 26 per cent.
New Zealand's state-controlled airline paid about A$72 million for the shares, with the largest purchase being for 77.4 million shares at 47.68 Australian cents apiece, or A$36.9 million under a forward transaction with Gresham Property Investments.
The New Zealand carrier's shares rose 0.4 per cent to $1.445 on the NZX and have gained 11 per cent this year. Virgin last traded at 45 Australian cents on the ASX.