Aussie watchdog rejects trans-Tasman airline union

1.00pm

The proposed alliance with Qantas that Air New Zealand claims is vital to its survival was rejected by the Australian competition watchdog today.

The Australian Competition and Consumer Commission (ACCC) said in a surprise announcement today that it opposed the alliance.

The ACCC had been expected to delay its decision until the Commerce Commission made its announcement later this month.

The commissions on both sides of the Tasman said in draft determinations in April that the airlines were unlikely to be able to ally the threat to competition such an alliance would pose.

Since then Virgin Blue has firmed up plans to fly across the Tasman, before Christmas if possible, and advertised for New Zealand flight crew during the weekend.

There had been speculation that that, along with the arrival of several other international airlines, would be enough too increase competition if the alliance proceeded.

Under the proposal, Qantas would take a 22.5 per cent stake in Air NZ for $550 million, and Air NZ would gain control of both airlines' flights to, from and within New Zealand.

However, the ACCC said in its ruling released at 12.30pm that the alliance was highly anti-competitive and offered little public benefit.

Air NZ's shares, which gained more than 30 per cent in under two weeks on speculation the commission would approve the alliance, plunged as soon as the announcement was released.

By 12.35pm Air NZ shares fell 6c to 54.

The alliance has been publicly supported by Air NZ majority shareholder the New Zealand Government, and the Australian Government.

However, it had to gain approval from the competition commissions on both sides of the Tasman.

ACCC chairman Graeme Samuel said today that the proposed alliance would be highly anti-competitive and offer little benefit to the Australian public.

Mr Samuel said the ACCC did not believe there was any good reason to depart from its view expressed in a April draft determination.

Asked about whether the ACCC would revisit its decision, he said not in the short term.

The ACCC could revisit the matter in the future if the applicants approached it with a revised proposal, and the market dynamics significantly changed.

Qantas chief executive Geoff Dixon said that ACCC's decision to reject the proposed alliance had not properly taken into account significant additional information evidence since April.

"There has been a stark contrast between the process followed by the New Zealand Commerce Commission and that followed by the ACCC," Mr Dixon said.

Qantas was considering an appeal to the Australian Competition Tribunal.

"The ACCC took a very narrow view of competition and consumer interests in its April draft determination, either ignoring or underestimating the significant structural challenges facing airlines around the world."

Air NZ has also said it would consider appealing if the alliance was turned down.

New Zealand's Commerce Commission said yesterday it would still release its decision at the end of the month, although it has not specified a date.

The commission held a six-day hearing in Wellington last month to hear further submissions from the airlines and other parties.

Virgin Blue's head of communications and strategy David Huttner said the scale of its operation, which would be used to fly trans-Tasman and domestic flights, would depend on the Qantas-Air NZ alliance.

Virgin Blue was "relatively close" to reaching agreement with Qantas and Air NZ on outstanding issues.

Air NZ dominates the domestic New Zealand market, with about 70 per cent market share.

A spokesperson for Finance Minister Michael Cullen said he would comment about 1.30pm.

- NZPA

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