Air NZ ready for alliance knockback

By CHRIS DANIELS

Air New Zealand and Qantas will learn tomorrow whether competition regulators have bought the airlines' argument to join forces in an alliance.

At noon, the Commerce Commission and its Australian equivalent, the Australian Competition and Consumer Commission, will issue draft determinations on the airlines' case.

Air New Zealand has been softening up public expectations of the decision, saying it will help to "clarify the issues on which the commission requires further input".

Airline chief executive Ralph Norris has already said he expects the alliance plan to be rejected initially.

He also again stressed the importance of Air NZ's low-cost Freedom Air brand.

The airline has emphasised the supposed "integral" nature of Freedom in the past few months, particularly after potential rival Virgin Blue said Freedom should be sold before any alliance was approved.

Virgin Blue says Freedom gives Air New Zealand an ability to swamp routes with cheap fares.

The draft determination is an important step in the approval process. But if, as expected, it rejects the alliance plan, that would signal the start, not the end, of the next stage of gaining approval.

Norris told the Business Herald last month that Air New Zealand would have an opportunity to address regulatory concerns later on in the process.

"Basically for us it's a matter of understanding what their concerns may be and addressing those in the process as it's being determined," he said.

The airlines would not know what the regulators wanted until the draft determination was issued.

It was also at this stage, said Norris, that the appropriate weight would be given to the test of national benefit.

In the event of the commissions' decision being negative, the airline would continue to "work hard to convince them of the benefits" it believed the alliance would bring.

Competition experts will be watching closely to see how Air New Zealand and Qantas plan to cope with the expected rejection.

The Commerce Commission does not get involved in "horse-trading" by the parties - negotiations to get a positive result. It instead likes to adjudicate on an application, which cannot be changed greatly in the middle of the process. This can be seen as unfair on people who made submissions based on the original application.

Air New Zealand may choose to go through the whole process of a rejection at the draft determinations stage, then a conference where it argues its case, then more submissions and a final decision.

If the final decision goes against it, it could then submit another application for an alliance, based on the new information it would then have about the Commerce Commission's thinking.

The agenda

Air New Zealand and Qantas want to form an alliance, with Qantas buying up to 22.5 per cent of Air NZ for about $550 million.

* All of Air NZ's domestic and international flying operations, and all of Qantas' flying operations that touch New Zealand, would be managed through a joint venture.

* The transtasman commerce commissions will issue their draft decision tomorrow. This will give their initial assessment of whether the alliance should proceed.

* Submissions on this draft ruling will be accepted until May 9, and a final decision will be published about the end of June.

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