New route 'collusion': Air NZ

Air New Zealand fears for its transpacific business. Photo / Martin Sykes

Air New Zealand will fight what it calls collusion between Virgin Blue and Delta Airlines on the United States-Australia route.

The New Zealand airline fears a proposed revenue sharing agreement between the two new entrants on the route could eat into its transpacific business.

Virgin began V Australia earlier this year to fly between Australia and the United States and this month Delta, the world's largest airline, has joined the market with Sydney and Los Angeles services.

V Australia has been losing money on the route and Delta has made a cautious entry into Australia given the tough long-haul aviation market.

Under the proposed tie-up, the airlines would share codes on domestic flights, co-ordinate schedules, and routes, use each other's planes on the most efficient routes, set fares together and then pool revenue.

Already New Zealanders are being offered cheap flights on V Australia via Sydney and Brisbane to Los Angeles. Promotional return flights in August start at around $1150.

If the deal is approved, it would be galling for Air New Zealand given the Australian Competition and Consumer Commission's rejection of a similar co-operation agreement it proposed with Air Canada on flights between Auckland and Sydney to Vancouver.

The airlines had planned to share the revenue from Air Canada's direct Sydney-Vancouver route and Air New Zealand's direct Auckland-Vancouver route and to jointly promote the flights.

However, ACCC last year said it was concerned the agreement would reduce competition between Air New Zealand's indirect flights and Air Canada's Australia-Canada direct flights, as Air New Zealand would receive revenue from the direct flights.

Air New Zealand's general counsel John Blair said the plan was anticompetitive. "These airlines have already both separately entered these markets, trumpeting the lower fares they will bring. Almost immediately, however, they are complaining about the ability of their competitors to force them out of the market if they are not allowed to collude on prices and capacity," he said.

Air New Zealand could understand the benefits to the two airlines, but most of the benefits for passengers that were claimed could be achieved through more usual arrangements such as code sharing.

Blair said if the ACCC was consistent, it would reject the deal as it did the Air New Zealand-Air Canada proposal.

"Despite neither airline being direct competitors on either the direct services or on any other individual routes the ACCC denied the application, yet the same proposal was approved by New Zealand's Ministry of Transport."

It is expected the ACCC could take six months to rule on the application.