Warning shots on Air NZ deal

Air New Zealand and Qantas want to share ticket sales, but first they must get permission. Picture / Brett Phibbs

Passengers and the price of transtasman fares should be given priority over airlines' interests when considering the proposed Air New Zealand-Qantas code-sharing agreement, says Australian Treasurer Peter Costello.

Competition watchdogs on both sides of the Tasman would probably look at plans by the two airlines to sell seats on each other's aircraft, Costello said yesterday.

The proposal came after a more comprehensive tie-up was rejected by competition bodies in Australia and New Zealand.

In comments likely to boost arguments against the latest proposed link, Costello said the competition aspects of the proposed deal had to be examined.

"It's got to be considered, yes, because people forget the purpose of competition policy is to get lower prices."

Costello said it was up to the two companies to show the competition authorities their proposal would not hurt customers.

"If they 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."

In New Zealand, the tie-up requires the approval not of the Commerce Commission, but of former Transport Minister Pete Hodgson, who was given the responsibility after present Transport Minister Annette King said she could not make the decision because of what could be seen as a conflict of interest.

Wellington Airport, its majority shareholder Infratil, and the Consumers Institute have all raised concerns about the proposed agreement.

Infratil has said the revenue sharing plans of the two airlines would turn the code-share agreement into a cartel, which should face examination by the Commerce Commission.

Infratil also had advice from public law expert Professor Michael Taggart, of Auckland University, who believed the transport minister's power to co-approve the deal might be more limited than thought.

The Travel Agents Association of New Zealand also raised concerns yesterday about the process under which the code share agreement would be considered.

Chief executive Paul Yeo said decision-making needed to be transparent and rigorous.

"Given the potential impact on consumers and the New Zealand economy, [the association] wants the minister to refer the application to the Commerce Commission for a full inquiry."

The association was yet to determine its position on the application, although most of the response from its members was strongly against the proposal.

Air New Zealand chief executive Rob Fyfe has accused Wellington Airport owners of overcharging and not being prepared to work with airlines.

In a speech to the Wellington Chamber of Commerce last month, Fyfe also accused code share critics of political grandstanding.

Qantas has said the two airlines would co-operate on prices and schedules, but would independently set deals with travel agents and incentives.

Code sharing would mean more efficient use of aircraft, and help protect Tasman routes from higher costs.

Air New Zealand this month indicated higher jet fuel prices would further reduce full-year profit.

Bloomberg reported then that average market forecasts for full-year profit had fallen from $112 million four weeks previously to $105 million.

While not endorsing that prediction, the airline was said to be clearly indicating earnings were likely to be lower than previously suggested.

Qantas yesterday forecast its profits were likely to fall by more than 25 per cent, mainly because of increased fuel prices.

But Costello said that, despite the tough conditions facing Qantas, it had significant advantages over other companies.

New laws covering depreciation, announced in last month's budget, would also help the company, he said.

Air New Zealand's share price closed down 4c yesterday at $1.14.

CODE SHARING

* Involves co-operation on schedules and prices.

* Airlines want to sell seats on each other's flights

* Revenue would be redistributed based on market share.

* Higher fuel prices are hitting airline profits.

- Additional reporting by AAP