Fran O'Sullivan: A cynical exercise that just might fly

What to do when the competition watchdog stops you from forming a cartel on which you've spent $50 million trying to get through legal hoops on both sides of the Tasman?

That's the issue Air New Zealand and Qantas have grappled with since our competition watchdog scuttled their grand strategic alliance proposal.

Their current answer is an ingenious combination of sophistry and legal tactics - derived from the in-depth knowledge of how to play loopholes that you would expect to have at your fingertips when you've secured some of the top brains in the Australasian legal business to help form your new battle plan.

The upshot is so cynically transparent it might just fly.

Rebrand your alliance proposal as a simple "code share" deal, one used by international airlines worldwide - and kick it up to the political arena where a single New Zealand Cabinet minister will make an independent decision on this side over the fate of a major Government-owned asset.

Yeah, right.

A truly independent decision is the last thing the airlines want.

With the Government owning 87 per cent of Air New Zealand in the first place and Finance Minister Michael Cullen still apoplectic that the Commerce Commission scuttled the initial strategic alliance plan, it is difficult to see how appointing a Cabinet minister to decide this vexed issue could be construed as in the interests of Air New Zealand's customers rather than the Government's.

Pete Hodgson is the Cabinet fall guy in this game. The former transport minister has been chosen to decide whether to agree to this blatant cartel.

He is not a shareholding minister in Air New Zealand, nor is he the current transport minister so he is considered not to be conflicted.

But this is politics. Ringing in his ears will be Cullen's riposte to the Commerce Commission after it jettisoned the strategic alliance plan: "I do note their comment that the Government will remain a shareholder, and would underline their comment that the Government is not necessarily committed to just providing endless capital in order to allow this competition to occur."

If the Finance Minister still holds this view it would be a brave colleague who decided to pull the plug on the code share in the interests of consumers.

Across the Tasman, Australian Treasurer Peter Costello has said forthrightly that passengers and the price of transtasman fares should be given priority over airlines' interests when considering the proposed code-sharing arrangement.

"The purpose of competition policy is to get lower prices ... if [watchdogs] can be convinced that it won't work to the detriment of consumers then they'll get a clearance. If the competition bodies can't be convinced of that then they won't."

But there's no one at Cabinet level publicly arguing a similar case here.

Yet again more reason to believe it will be difficult for Hodgson to do an independent job when none of his colleagues appear to be arguing on the side of the New Zealand consumer.

In any event it's obvious that the reason the proposal is structured as a Transtasman Network Arrangement (code share) is to avoid the scrutiny of our watchdog, the NZ Commerce Commission, in the first place.

It's worth noting the commission ruled it was more important to preserve competition in the New Zealand aviation industry than secure the future fortunes, or existence, of the national carrier.

It said if the two transtasman rivals combined, prices would rise and service levels fall. Already it is clear the service levels will drop if Qantas and Air New Zealand rationalise transtasman flights between them.

In this vacuum, with no Cabinet minister, or ministry, pushing for the consumer's interests, it has been left to Wellington Airport to carry the fight.

Wellington Airport CEO Simon Draper and Infratil executive Tim Brown are holding extensive briefings with business interests in the capital, which promises to be one of the most seriously affected of our cities if the code share goes ahead.

Draper is intent on exposing 10 airline myths he claims Air New Zealand is using to bolster its case.

Wellington Airport has also issued a table to illustrate that the code share is simply the strategic alliance in drag.

The airport company's briefings are now being strongly supported by Wellington businesses who don't buy the line that the capital should ultimately become simply a feeder airport for Auckland.

Draper has already talked to Singapore Airlines about operating a service to Asia from Wellington and is fast gathering support for his cause. But there's a deafening silence at the Government level.

It's hardly as if Air New Zealand is standing still. Air New Zealand corporate counsel John Blair is pushing the airlines' case among the aviation industry. He contends the two airlines have on average 6300 empty seats between them daily - which is equivalent to 11 empty aircraft crossing the Tasman.

He claims it makes sense for the airlines to code share to cut down on the excess capacity.

Air New Zealand and Qantas have made much of the promise to set independent deals with travel agents, and incentives - which Wellington Airport has perhaps conveniently omitted from its table.

There is considerable cynicism in Wellington business circles over this latest attempt to get the cartel to fly. But there's a second string to this.

Air New Zealand chairman John Palmer - who strongly backed the previous Qantas/Air New Zealand proposal on economic and survival grounds - is at the forefront of proposals to reform our competition laws so that major companies can put aside competitive interests and bulk up to compete offshore. The logic is that New Zealand cannot survive against international competitors that have the advantage of scale.

It's reasonably self-interested and is already the subject of an official review ordered by Commerce Minister Lianne Dalziel.

Surely Palmer should wait for the outcome of the review instead of going through the back door? That's the principled course Air New Zealand's customers should urge on the Government - not this tawdry back-door play.


THE MYTHS

Ten myths that Wellington Airport says it is exposing to scuttle the Air New Zealand/Qantas transtasman cartel:

* This agreement is all about the Tasman.
* This is a normal code share.
* You can't make money on the Tasman.
* There is enormous excess capacity on the Tasman.
* Qantas and Air New Zealand can do nothing unilaterally.
* The Tasman routes are intensely competitive.
* Virgin and Emirates will constrain the cartel.
* Other airlines will enter if fares increase.
* There are no alternatives.
* There are benefits for customers from a cartel.