QF/NZ bid rejected
10apr03
BOTH Australia's and New Zealand's competition watchdogs today rejected the $500 million alliance between Qantas Airways and Air New Zealand.
Australian Competition and Consumer Commission chief Professor Allan Fels said the deal, which would give Qantas 22.5 per cent ownership of Air New Zealand, would harm the freight market and was anti-competitive.
"An alliance would remove competition, raise prices and reduce service," he said.
"It would end all competition on the trans-Tasman route."
He said Qantas and Air New Zealand have a 90 per cent market share of trans-Tasman traffic.
Professor Fels said even if Virgin Blue were to start flights to New Zealand, it would only be a small role and the alliance between Qantas and Air New Zealand would be too dominant.
He said Virgin Blue had carved out a significant market share in Australia, because there was a vacuum to fill, but it would find it much harder to make ground if it entered New Zealand.
Professor Fels said Air New Zealand had recently withdrawn from flights between Australia and North America, and an alliance would make it very improbable that it would re-enter that route again.
He said that because the ACCC had issued a draft determination today, it could not close the door on the proposal.
The ACCC would now listen to further proposals from the parties and if there were any faults in the ACCC ruling today, they would be considered.
The New Zealand competition watchdog the Commerce Commission said it was not satisfied the public benefits resulting from the proposed alliance would "outweigh the detriment".
The NZ watchdog said the proposed alliance would likely result in a substantial lessening of competition in the passenger service markets, freight markets and national wholesale travel distribution market.
It said the detriment to the public of New Zealand would be likely to fall in the range of $NZ202 million ($182 million) and $NZ432 million per annum."
Professor Fels said putting the two airlines together would harm imports and exports to and from Australia.
He said the claim of benefits to tourism was slight.
He said the undertakings given by the parties were qualified, limited and hard to enforce.
Professor Fels said that observers had severely over estimated the weakness of Air New Zealand.
"It is in quite a strong position and it has good results."
He said the proposal was for a long-term alliance to try to overcome short-term difficulties in the airline industry.
The airlines had claimed that if the alliance did not proceed they would engage in a "wasteful capacity war", each adding significant numbers of aircraft to routes on which they compete.
Professor Fels said most of the claimed cost savings arose from not engaging in that war.
If the proposed alliance went ahead, he said, the market would move from a two-airlines market to an effective one-airline market.
"Passengers will be denied choice and increased air fares will be inevitable," he said.
The airlines and interested parties now have the chance to call a conference to make oral submissions to the ACCC before it makes its final decision.
If called, the conference would be held in Sydney on May 2. Final written submissions need to be lodged with the ACCC by May 9.
Professor Fels said the ACCC would make its final determination on the Qantas/Air New Zealand deal in June.
Qantas shares were four cents weaker at $3.03 at 1029 AEST.