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Lake Moondarra
10th Apr 2003, 09:38
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Professor Fels said Air New Zealand had recently withdrawn from flights between Australia and North America, and an alliance would make it very improbable that it would re-enter that route again.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.

Evacu8
10th Apr 2003, 14:24
MEDIA RELEASE

QANTAS STATEMENT ON ACCC AND NZCC DRAFT DETERMINATIONS

SYDNEY, 10 April 2003: Qantas said it would continue to pursue a relationship with Air New Zealand despite today's negative draft determinations by the Australian Competition and Consumer Commission and the New Zealand Commerce Commission.

Qantas Chief Executive Officer Geoff Dixon said the two draft determinations were lengthy, totalling almost 450 pages, and it was not possible to give a detailed response immediately.

"However, what I can say today is that it is remarkable that both authorities appear to have completely ignored the ongoing crisis in the global aviation industry.

"The draft determinations highlight the growing gulf between the commercial realities and long term restructuring challenges facing the aviation industry and the pursuit, by competition regulators, of ideals and market outcomes that the industry simply will not be able to deliver on a sustainable basis.

"It is also extraordinary that the NZCC appears to have endorsed government support of airlines, a practice that has only compounded problems in the aviation industry. Just as extraordinary is the ACCC's view that there is no national interest benefit, as claimed by Qantas."

Mr Dixon said the severe strain being experienced by airlines worldwide had been well documented and was further confirmed overnight with Lufthansa, Germany's national carrier, declaring "a state of crisis".

"It is surely in the national interest for both New Zealand and Australia to have viable and competitive airline systems. This will not be advanced by competition authorities ignoring the realities of the world."

Wirraway
11th Apr 2003, 15:06
Asia Pulse

Friday April 11, 2:19 PM AEST
Virgin Blue Would Allow Air NZ, QANTAS Tie-up With Conditions

SYDNEY, April 11 Asia Pulse - Virgin Blue boss Brett Godfrey said he would no longer oppose Qantas Airways Ltd's proposed Air New Zealand stitch-up if two conditions were added to the deal.

Mr Godfrey said access to key NZ airports for Virgin Blue and the removal of Air NZ's cut-price operator Freedom Air would substantially reduce anti-competitive aspects of the scheme.

"It would be difficult for us, if we got those two things resolved, to honestly resubmit to the ACCC (Australian Competition and Consumer Commission) saying it should still be rejected," Mr Godfrey told AAP.

Both the ACCC and the New Zealand Commerce Commission today said they planned to reject the Qantas-Air NZ deal, which involved Qantas buying 22.5 per cent of Air NZ and the two carriers forming a code-share arrangement.

Mr Godfrey said the proposal was "extremely anticompetitive and therefore no one in the industry is really surprised about today's announcement".

"Without them (Qantas and Air NZ) offering them anything other than a paragraph ... as to what they were prepared to do, of course it should have been rejected," he said.

But he said the sale of Freedom Air, possibly to Virgin Blue, and unhindered access to key NZ airports for Virgin Blue, would dramatically improve the competitive landscape.

"Our anti-competition concerns are alleviated to a huge degree by any carrier, be it us or anyone else, given fair access at times that suit the airline schedule - not Qantas' and Air NZ's schedule - to at least the key airports in NZ," he said.

"If that's (Freedom Air) pulled out or sold to us - we'd be an interested bidder - that would alleviate the vast majority of our concerns."

He said Virgin Blue would be interested "with a fair degree of substance" in competing in the NZ market if it was offered Freedom Air for sale.

"We've got about 25 per cent of the Australian domestic market, there is no reason why we couldn't fairly quickly go to 25 per cent of the NZ market and the Tasman with the equipment that we've got coming on over the next two or three years," he said.

"If it is blocked, or else it goes through but with the concessions and undertakings that we've sought, then we will be a very much more substantive player."

Mr Godfrey confirmed Virgin Blue Airlines Pty Ltd, half owned each by logistics group Patrick Corp Ltd and Sir Richard Branson's Virgin group, was on standby for a float originally tipped for early 2003 but shelved because of unstable equity markets.

"We will be ready when our board has confirmed a date, and assuming they choose a date - at this stage I've not been given a date," he said.

"The economic climate's got to be right because if it's not they're (Patrick and Virgin) not going to get the best value for their investment."

ASIA PULSE
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AAP

Mr Godfrey said a Virgin Blue delegation would shortly head to Washington to negotiate with the United States government's Export-Import Bank, seeking to have it underwrite 85 per cent of the value of 10 new aircraft.

While banks would need to be found in order to finance the operation, the remaining 15 per cent - or about $100 million - could be funded through existing cash flow, he said.

Mr Godfrey said access to key New Zealand airports for Virgin Blue and the removal of Air NZ's cut-price operator Freedom Air would substantially increase its chances of entering the NZ market.

"We've got 10 aeroplanes coming on - we've earmarked six of those for international destinations," he said.

"I'd like some of those to go into NZ. If it was arranged in such a way that we could get fair access, perhaps more of those six would find their way to NZ.

"We're not far from at least announcing our first international route and I'm comfortable it will be in before Christmas."

Mr Godfrey reconfirmed earlier predictions Virgin Blue would record a pre tax profit of $100 million to March 31.

AAP
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VeeBee
11th Apr 2003, 17:16
As far as I am aware there is nothing to stop V Blue operating in NZ or the Tasman whenever they feel like it. If they are truly a low cost operator as they claim, then the others will go broke matching their fares, not the other way around.
Methinks they do protest too much.

Wirraway
12th Apr 2003, 01:35
Sat "Weekend Australian"

Airline deal needs help to get off the ground
April 11, 2003

THE Australian and New Zealand Governments will have to twist their trade practices regulators' arms if the proposed Qantas-Air New Zealand alliance is to come to fruition.

Yesterday, the Australian Competition and Consumer Commission and the NZ Commerce Commission both knocked back the proposal – which includes an injection of $500 million for a 22.5 per cent stake in the Kiwi airline.

In separate draft determinations, both said it would be highly anti-competitive, substantially lessen competition, and any benefits would be far outweighed by detriments.

And the ACCC did not think it was in the national interest.

The airlines could offer undertakings in an attempt to obtain authorisation. But while the NZCC left that door open, the ACCC virtually slammed it shut. Using surprisingly strong language outgoing ACCC chairman Allan Fels said there was "extremely limited" potential for undertakings to make such a difference that authorisation could be granted. That statement has a ring of finality about it.

Qantas and Air NZ offered to negotiate undertakings for facilitating new entries on the trans-Tasman route and in relation to capacity and locking in claimed public benefits. The ACCC didn't think much of them. It thought they'd do little to alleviate its concerns and that they were heavily qualified, difficult to enforce and required monitoring.

This suggests that whether or not the NZCC changes its mind, the ACCC is unlikely to. The proposal cannot proceed unless it is approved by both.

The hard-line approach of both regulators is surprising, given that both the Australian and NZ Governments favour the alliance. The NZ Government is particularly interested in the outcome, because it was forced to pump in $NZ855 million ($780 million) to rescue Air NZ after the collapse of its Australian offshoot, Ansett Airlines. It's reluctant to commit further public funds.

Qantas and Air NZ might have to ask their governments to "persuade" their respective regulators that the proposal is in the national interest. The ACCC has statutory independence but has always been a politically savvy organisation.

But Fels is due to depart for academe shortly and may be hard to deflect. He may see this as his last hurrah. The ACCC has had some reverses recently, including the fiasco of its investigation into Caltex, Mobil and Shell, and its High Court losses to Boral over predatory pricing and to shopping centre landlords over unconscionable conduct. Fels may think he's on a winner this time.

As a last resort, the governments could consider legislation – the NZ Government used it to restructure its dairying industry through the merger of the major co-operatives to form Fonterra. But it must be wondered whether the Australian Government would go that far.

Qantas's national interest appears to be that the commercial alliance is necessary to ensure a viable Australasian aviation industry.

Neither airline resorted to the "failing firm" argument: that Air NZ would collapse if the alliance didn't proceed. That would have been hard to argue, given that the NZ Government has deep pockets. It might be reluctant to commit more funds to the Kiwi airline, but it has the capacity to do so.

But that doesn't necessarily mean that the NZ airline would have carte blanche to feed off the public purse. It may be that if the proposal doesn't go ahead, the NZ airline will find itself on drip feed.

Air NZ's concern is that if the proposal doesn't proceed it will inevitably be squeezed between any new entrant and Qantas, particularly if the new entrant is a discount fare operator such as Virgin Blue. That was Ansett's fate. Faced with competition from discount operators, the weakest of the full service airlines collapsed.

Qantas chief executive Geoff Dixon yesterday attacked both regulators, claiming it was remarkable they both seemed to ignore the continuing crisis in the global aviation industry, and the realities of the marketplace.

Fels is unlikely to be swayed. As proposed, the alliance would result in Qantas and Air NZ co-ordinating schedules and pricing for all flights to, from and within NZ. They would essentially operate as a unit.

That would effectively turn an oligopoly into a monopoly and give them control of more than 90 per cent of the passenger market, and more than 70 per cent of the air freight market, The ACCC believes that result would be higher charges.

The NZCC's analysis further demonstrates why the chasm between the airlines and the regulators will be so difficult to bridge. The airlines estimated the benefits of the alliance would total $236 million per annum by year three, and the detriments only $10,3 million: a net benefit of $226 million.

But the NZCC estimates the benefits at only $30.2 million to $46.3 million, resulting in a net detriment of between $155.7 million and $401.8 million.

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