View Full Version : Virgin seeks trade-offs in NZ

2nd Dec 2002, 17:21
Tues "Australian Financial Review" 3/12/02

Virgin seeks trade-offs in NZ
Dec 3
Jane Boyle

Virgin Blue is preparing for a bout of horse-trading that might pave the way for the discount carrier to compete with Qantas and Air New Zealand if their proposed $NZ550 million ($486 million) equity alliance proceeds.

Virgin Blue's head of commercial operations, David Huttner, said the airline sent a letter to NZ Transport Minister Paul Swain yesterday requesting a meeting before Christmas to discuss its concerns about the anti-competitive effects of the Qantas-Air NZ tie-up.

The NZ Government, which owns 82 per cent of Air NZ, plans to decide by December 16-18 whether to approve a placement of shares giving Qantas 5 per cent of the NZ carrier.

If the NZ Government agrees to that, the airlines would face a six-month battle to convince the Australian Competition and Consumer Commission and NZ Commerce Commission to allow Qantas to lift its stake through two further tranches to 22.5 per cent.

If Virgin Blue is prepared to compete on Tasman and domestic New Zealand routes it may alleviate some of the competition regulators' concerns.

Mr Huttner said Virgin Blue did not plan to present the NZ Government with a list of demands. But he indicated the airline was prepared to negotiate: "We will highlight our key concerns.

"Clearly everybody wants an environment that would sustain a reasonable amount of competition."

Speculated trade-offs that would help Virgin compete range from forcing Air NZ to divest its no-frills subsidiary, Freedom Air, to guarantees on access on competitive terms to domestic terminal facilities at Auckland Airport and services such as ground handling.

However, some analysts question Virgin Blue's ability to compete viably with Qantas and Air NZ on the Tasman and domestic NZ routes. Air NZ lost nearly $NZ80 million on the Tasman last year.

Over the past 15 years second carriers operating in NZ have lost hundreds of millions of dollars and Tasman Pacific, which flew as Qantas NZ under a franchise agreement with Qantas, collapsed.

Qantas and Air New Zealand plan to lodge their applications for authorisation of the deal, together with undertakings on issues such as pricing and capacity, with regulators on Monday.

Industry analysts have suggested that in order to encourage competition, the Australian Government could agree to open skies arrangements with the likes of Singapore and Hong Kong as a trade-off for the Qantas-Air NZ alliance being allowed to proceed.

Australia and Singapore are in the process of renegotiating their agreement on air services rights.