Air NZ and Qantas alliance benefits called into doubt

By CHRIS DANIELS aviation writer

Are higher airfares justified if the money raised goes straight to one of our own companies - namely Air New Zealand?

This question was raised in the High Court at Auckland yesterday, during the hearing of the airline's appeal against the Commerce Commission rejection of an alliance plan with transtasman rival Qantas.

In Australia, where the alliance has also been rejected by competition authorities, benefits are counted only if they come to consumers, whereas in New Zealand they are counted by the commission even if they are enjoyed only by a business.

The commission estimates the alliance will mean airfare rises of between 5 per cent and 24 per cent, depending on the route. It says New Zealand would be worse off by $195 million a year, after three years of any alliance.

John Land, lawyer for travel company Gulliver's Pacific, which is opposing the alliance, told the court this meant the commission had inflated any benefit that would come from the alliance.

Money going from consumers to the airlines by way of higher airfares - described as "wealth transfers" should not be counted as a benefit, since this was not New Zealand law.

Land said that in 1993 the Government announced public benefits would now be counted as anything coming to New Zealand - meaning businesses as well as consumers. This, however, was never put into law, so the commission should not be counting extra money coming to Air NZ from higher airfares as benefits.

Whether more tourists would come to New Zealand as a result of the alliance was also disputed by Land. He read a letter from the Ministry of Tourism sent to the commission, which warned of damage to the tourism industry if Air NZ was forced to leave the Star Alliance.

If it joined Qantas in its rival Oneworld alliance, then there would be no Star Alliance airline connecting New Zealand with the United States.

Qantas wants to buy up to 22.5 per cent of Air NZ for $550 million. The airlines then want to fix prices and co-ordinate services on all their flights to, from and within New Zealand.

On some routes, such as between Auckland and North America, they would have all the market.

Regulators in Australia and New Zealand rejected the idea last year, saying it was anti-competitive. The airlines are appealing against this decision to the High Court in New Zealand and are awaiting the result of a similar appeal in Australia.

The case is expected to continue throughout this week.