Infratil warns Air NZ, Qantas deal could trim Tasman seats

Airport investment company Infratil says the revenue sharing plans of Air New Zealand and Qantas will turn the code-share agreement into a cartel which should face Commerce Commission scrutiny.

As part of the proposed code share agreement the two airlines will not compete for passengers on the Tasman routes. Instead, all revenue will be pooled and re-distributed based on historical market shares.

"It is the worst possible scenario, said Tim Brown of Infratil, which owns a majority stake in Wellington Airport. "How could it possibly result in growth?"

Critics say Wellington Airport will be the biggest loser under the code share plan as it has fewer competitors on its Tasman routes. Infratil was not opposed to the concept of a code share but "the more we look at this deal the more we see that it is highly anti-competitive", Brown said.

The company would seek legal advice on whether there was a code share agreement (as exempted from the Commerce Act) or a cartel (which should be subject to Commerce Commission approval).

Air NZ yesterday confirmed the details of the revenue sharing agreement but said it had been open about that from the outset.

Every code share deal had to set revenue, implicitly or explicitly, said Air NZ spokesman David Jamieson.

"You either have a pre-agreed price at which the operating airline sells seats to the other airline - which effectively sets the price - or you share revenue as proposed here. The end effect is quite similar."

The key point was that it was not a profit share as proposed under the Alliance deal (which was rejected by the Commerce Commission in 2003). The airlines would remain responsible for their own costs.

Brown said that was even worse than a profit share.

"If it was just a profit share both would be incentivised to invest. As it's structured here, both are incentivised to minimise expenses and minimise capacity on an ongoing basis."

Air NZ disputes this, maintaining there is real potential for growth on the Tasman. While there was a small reduction in capacity the airlines would act if there was any indication that demand was exceeding supply, Jamieson said.

A Treasury report acquired under the Official Information Act shows the ministers for transport, commerce and tourism were briefed about the code share proposal a month before it was made public.

The report, dated March 31, was prepared for Deputy Prime Minister Michael Cullen. The report's recommendations on how the Government should assess the application have been withheld from the public.