The deal, if approved by regulators on both sides of the Tasman, will give Virgin Australia customers direct access to Air New Zealand flights into Auckland, Wellington and Christchurch. Flights are excluded to Queenstown, the only New Zealand centre Virgin has returned to since the pandemic.
The airlines say there would be no “competitive detriment” because it doesn’t result in any loss of competition, services or benefits. Air New Zealand would determine the fare levels.
Air New Zealand gets no offsetting benefit by way of a reciprocal code share.
One industry source says the move is a defensive one by Air New Zealand to ensure Virgin Australia doesn’t re-enter main trunk routes with its own planes.
But the application states that Virgin Australia would continue to assess the viability of its own services.
“The proposed conduct does not change Virgin Australia’s incentives regarding entry onto the transtasman utilising its own aircraft and therefore does not have the effect of delaying or disincentivising entry that would otherwise occur,” says the application to the NZ Ministry of Transport and Australian Competition and Consumer Commission.
“Consistent with its approach to assessing its network and the deployment of resources, Virgin Australia will continue to assess the commercial viability of transtasman services with or without the proposed conduct.”
The competitive dynamics of the Tasman market are characterised by many operators and the availability of new entry and expansion due to the Open Skies agreement and the fifth freedom rights available for international carriers.
The large proportion of leisure travellers on the Tasman intensifies fare competition, providing a strong incentive for operators to compete for higher-yielding business travellers.
“The result is that the Tasman is also characterised by strong fare competition for both corporate and leisure travellers.”
Parts of the application are deemed commercially sensitive and redacted.
As part of the deal:
- Velocity members will be able to earn and redeem Velocity Frequent Flyer Points and accrue status credits on codeshare services.
- Eligible passengers will be able to access Air New Zealand’s seven international lounges across Australia and New Zealand located at Sydney, Melbourne, Brisbane, Perth, Auckland, Christchurch and Wellington
- The airlines will co-operate in relation to jointly providing offers to corporate and small and medium enterprise (SME) customers, including discounts on flights.
- The airlines would continue to provide reciprocal network-wide staff leisure, business and duty travel arrangements.
“This enhanced marketing is expected to result in incremental traffic with corresponding benefits for the New Zealand tourism sector more generally,” the application says.
In addition to this, the proposal is expected to result in “incremental passengers” on Air New Zealand services.
This not only had the benefit of improving the efficiency and sustainability of Air New Zealand’s flight operations, it is also of more general benefit to New Zealand given half of Air New Zealand’s shareholders are Kiwis (via the Crown’s 52 per cent stake in the airline.)
The MOT is taking submissions on the application until February 1.
When the pandemic hit in March 2020, Virgin Australia tumbled into administration and quit flying here. Flights to Queenstown were restored last year but the airline - which had about 14 per cent of the transtasman market before Covid - has not resumed flying into the main centres.
Air New Zealand at one point held a 26 per cent equity stake in Virgin, spending hundreds of millions building that up and answering calls for cash as the Australian airline struggled in its domestic market. As part of a deep joint venture, the airlines jointly managed capacity, booked passengers on each other’s planes and shared revenue. The arrangement broke up in 2018.
Passengers were channelled onto each other’s domestic network, shared lounges and points schemes.
The new proposal is nowhere near that deep but represents a significant thawing of relations between the two airlines, at a time when their common rival Qantas is showing willingness to flex its muscles across the Tasman.
Grant Bradley has been working at the Herald since 1993. He is the Business Herald’s deputy editor and covers aviation and tourism.