Qantas-Air NZ Inquiry
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Qantas-Air NZ Inquiry
Will post here any summeries for the next 6 days for the six
day inquiry that began today.
Wirraway
Day 1
Air NZ Says It's Unlikely To Survive Without Qantas
By Christopher Niesche
Of DOW JONES NEWSWIRES
WELLINGTON (Dow Jones)--If Air New Zealand Ltd. isn't allowed to form an alliance with Qantas Airways Ltd. , it will be "squeezed" by the Australian carrier and probably won't survive, Air NZ said in a last ditch attempt to persuade regulators to approve the move.
"Without the alliance, Air New Zealand faces a struggle for survival - but which it is poorly place to win," Air NZ Chief Executive Ralph Norris told the New Zealand Commerce Commission Monday at the opening of the commissions weeklong inquiry in to the proposal.
Under the proposed alliance, Qantas will take a 22.5% stake in Air New Zealand for a capital injection of NZ$550 million, and the airlines will cooperate across all common routes.
In April, the NZCC and the Australian Competition & Consumer Commission rejected the alliance, with the NZCC saying it "wouldn't result in a net public benefit to New Zealanders."
Now, the two airlines are trying to change the regulator minds, although they aren't presenting any new arguments.
Norris told the NZCC that the New Zealand domestic market already isn't able to sustain two full service airlines, or FSAs. And as Virgin Blue, a value-based airline, or VBA, will soon join Air New Zealand and Qantas in the domestic market, Air NZ will find it even more difficult to survive, he said.
"It is not difficult to foresee the outcome of a battle for market share between Air New Zealand, an expanding Qantas and the expanding VBA Virgin Blue," Norris said. "For Air New Zealand, it is not difficult to foresee in the relative short term squeeze developing."
The only way Air NZ could survive is to be the only remaining FSA in New Zealand and that can only be achieved through the alliance, Norris said.
Without the alliance, the two airlines in New Zealand will fight a "war of attrition" that Air NZ will probably lose.
Virgin Blue, Australia's second largest airline that is half owned by Patrick Corp, has said it plans to begin flights across the Tasman later this year and also start domestic New Zealand services.
Air New Zealand and Qantas have argued that it will be easier for Virgin Blue to enter the market under the proposed alliance following undertakings they gave in May to make room for competitors.
And Virgin Blue's presence on those routes will keep prices down, they said.
Qantas Chief Executive Geoff Dixon said Monday the "airline industry globally is in crisis" due to an increase in the number of VBAs, government subsidies on other airlines and effects of the war in Iraq and SARS outbreak.
The NZCC asked Dixon during the inquiry if he agreed that Qantas would win the war of attrition against Air New Zealand if the alliance was rejected.
"One of the things I don't want to get into...is anything that could be perceived as a threat by Qantas about what it will do or won't do," he said.
But he added: "We will lose less money by growing our business."
As he had done before, Norris linked the fate of Air New Zealand with the fate of the country itself.
"Authorization of the alliance with Qantas is absolutely critical to the future of Air New Zealand and, because the fortunes of New Zealand's tourism industry are so inextricably tied to the fortunes of Air New Zealand, also critical to the future well-being of New Zealand.
The NZCC expects to decide on the application around the end of September, but even if the two airlines are successful in Wellington, they will still have to convince the ACCC that their alliance isn't anti-competitive.
===========================================
day inquiry that began today.
Wirraway
Day 1
Air NZ Says It's Unlikely To Survive Without Qantas
By Christopher Niesche
Of DOW JONES NEWSWIRES
WELLINGTON (Dow Jones)--If Air New Zealand Ltd. isn't allowed to form an alliance with Qantas Airways Ltd. , it will be "squeezed" by the Australian carrier and probably won't survive, Air NZ said in a last ditch attempt to persuade regulators to approve the move.
"Without the alliance, Air New Zealand faces a struggle for survival - but which it is poorly place to win," Air NZ Chief Executive Ralph Norris told the New Zealand Commerce Commission Monday at the opening of the commissions weeklong inquiry in to the proposal.
Under the proposed alliance, Qantas will take a 22.5% stake in Air New Zealand for a capital injection of NZ$550 million, and the airlines will cooperate across all common routes.
In April, the NZCC and the Australian Competition & Consumer Commission rejected the alliance, with the NZCC saying it "wouldn't result in a net public benefit to New Zealanders."
Now, the two airlines are trying to change the regulator minds, although they aren't presenting any new arguments.
Norris told the NZCC that the New Zealand domestic market already isn't able to sustain two full service airlines, or FSAs. And as Virgin Blue, a value-based airline, or VBA, will soon join Air New Zealand and Qantas in the domestic market, Air NZ will find it even more difficult to survive, he said.
"It is not difficult to foresee the outcome of a battle for market share between Air New Zealand, an expanding Qantas and the expanding VBA Virgin Blue," Norris said. "For Air New Zealand, it is not difficult to foresee in the relative short term squeeze developing."
The only way Air NZ could survive is to be the only remaining FSA in New Zealand and that can only be achieved through the alliance, Norris said.
Without the alliance, the two airlines in New Zealand will fight a "war of attrition" that Air NZ will probably lose.
Virgin Blue, Australia's second largest airline that is half owned by Patrick Corp, has said it plans to begin flights across the Tasman later this year and also start domestic New Zealand services.
Air New Zealand and Qantas have argued that it will be easier for Virgin Blue to enter the market under the proposed alliance following undertakings they gave in May to make room for competitors.
And Virgin Blue's presence on those routes will keep prices down, they said.
Qantas Chief Executive Geoff Dixon said Monday the "airline industry globally is in crisis" due to an increase in the number of VBAs, government subsidies on other airlines and effects of the war in Iraq and SARS outbreak.
The NZCC asked Dixon during the inquiry if he agreed that Qantas would win the war of attrition against Air New Zealand if the alliance was rejected.
"One of the things I don't want to get into...is anything that could be perceived as a threat by Qantas about what it will do or won't do," he said.
But he added: "We will lose less money by growing our business."
As he had done before, Norris linked the fate of Air New Zealand with the fate of the country itself.
"Authorization of the alliance with Qantas is absolutely critical to the future of Air New Zealand and, because the fortunes of New Zealand's tourism industry are so inextricably tied to the fortunes of Air New Zealand, also critical to the future well-being of New Zealand.
The NZCC expects to decide on the application around the end of September, but even if the two airlines are successful in Wellington, they will still have to convince the ACCC that their alliance isn't anti-competitive.
===========================================
Last edited by Wirraway; 18th Aug 2003 at 20:27.
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As a QANTAS shareholder I'd prefer the Q wait until AirNZ goes bankrupt as it is again threating to do, then buy it at a much cheaper price, as I'm sure no one else will want it. What do other QANTAS shareholders and employees think?
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Tues "The Australian"
Airlines face merger music
By Claire Harvey
August 19, 2003
FIERCE trans-Tasman airline competition would result in "scorched earth" and lost jobs, Qantas chief executive Geoff Dixon has warned in a bid to persuade sceptical regulators to allow his planned alliance with Air New Zealand.
But while both airlines claim the Kiwi carrier could collapse without the merger, Air NZ chief Ralph Norris was forced to admit yesterday his company's performance had improved dramatically in the past year.
The developments came at the NZ Commerce Commission in Wellington, which is holding public hearings on the proposed deal, under which Qantas would buy 22.5 per cent of Air NZ.
Commissioners grilled Mr Norris and Mr Dixon on the proposal, demanding to know why the airlines should be exempt from anti-competition laws.
Mr Dixon, speaking on video-link from Australia, said the merger would make it easier for a third airline such as Virgin Blue to enter the trans-Tasman and domestic NZ markets.
"(With) the three of us fighting it out, some people are going to be very, very badly hurt," he said.
"That's the law of the jungle, OK, but I don't believe that's a very smart way to go. I believe consolidation - provided that we do it properly and we're seen to do it properly - is a much better outcome."
Mr Dixon rejected a suggestion by Commissioner Denise Bates that passengers would enjoy cheaper fares if all three airlines were competing equally.
"If that's what the view of people is, that the best way to do this is to have a scorched earth policy and put people out of work and just make it red ink everywhere, I suppose that's one way to go," Mr Dixon said.
"Why wouldn't you say, here are two airlines that are very important to both countries, they (can) get together?"
Commissioner Paula Rebstock suggested the alliance would make it more difficult for Virgin to enter the market.
"It seems to me you have presented us with a powerful argument that the way to ensure New Zealand gets as much public welfare as possible would be to ensure Virgin Blue can enter and drive down costs and prices," she said.
"If one airline has to go to the wall, it might as well be the most inefficient one."
The airlines must win approval from the Australian Competition and Consumer Commission and the NZCC, which will announce its decision in late September.
Air NZ will this week present confidential evidence to the NZCC showing it would struggle to survive without the deal, Mr Norris said.
"The medium-term outlook for Air New Zealand is seriously adverse," he said.
But Mr Norris admitted next week's annual results would show the Kiwi carrier had benefited from global jitters over the SARS outbreak and war in Iraq.
==========================================
NPZA
Go cut-price, Easyjet tells Air New Zealand
August 20, 2003
Air New Zealand must prepare itself for a future without traditional full service airlines, the head of cut-price UK giant EasyJet said yesterday.
Easyjet chief executive Ray Webster told the New Zealand Commerce Commission's hearing into Air NZ's proposed alliance with Qantas that the challenge for full service airlines was whether they could adapt.
He said he believed Air NZ and Qantas had to consolidate, as they were both small compared with the "value-based airlines" in Europe and the US, which had low costs and travelled from point-to-point rather than operating a network.
"If I was running Air NZ I'd have to think about it a little bit, but traditional airlines really have to change. Long-haul airlines particularly have to think how they're going to take capacity out of that market because they're not going to be successful and apply it somewhere else," Mr Webster said.
In other words, it would no longer be possible to be all things to all people.
"Consumers, once comfortable that a low-cost airline is safe and reliable, do not want to pay more for air travel than they need to."
Full service airlines were likely to see an erosion of their fares across a large number of routes, even if a low-cost airline was not as frequent or travelled to all destinations.
"You can slow down the depletion of shareholder wealth but you can't stop it. In time a low-cost airline will win because of its superior cost base and highly specialised business processes," Mr Webster said. He advised Air NZ to begin "a slow retreat in the order of the next 10 years" from the domestic market, and concentrate on the long-haul market.
"Deregulation will eventually become global. The rules applying to short haul are exactly the same as will apply to medium and long haul."
That would be quite a challenge for Air NZ, which is losing money on its international routes, with the domestic market underpinning its profitability.
NZPA
=============================================
Airlines face merger music
By Claire Harvey
August 19, 2003
FIERCE trans-Tasman airline competition would result in "scorched earth" and lost jobs, Qantas chief executive Geoff Dixon has warned in a bid to persuade sceptical regulators to allow his planned alliance with Air New Zealand.
But while both airlines claim the Kiwi carrier could collapse without the merger, Air NZ chief Ralph Norris was forced to admit yesterday his company's performance had improved dramatically in the past year.
The developments came at the NZ Commerce Commission in Wellington, which is holding public hearings on the proposed deal, under which Qantas would buy 22.5 per cent of Air NZ.
Commissioners grilled Mr Norris and Mr Dixon on the proposal, demanding to know why the airlines should be exempt from anti-competition laws.
Mr Dixon, speaking on video-link from Australia, said the merger would make it easier for a third airline such as Virgin Blue to enter the trans-Tasman and domestic NZ markets.
"(With) the three of us fighting it out, some people are going to be very, very badly hurt," he said.
"That's the law of the jungle, OK, but I don't believe that's a very smart way to go. I believe consolidation - provided that we do it properly and we're seen to do it properly - is a much better outcome."
Mr Dixon rejected a suggestion by Commissioner Denise Bates that passengers would enjoy cheaper fares if all three airlines were competing equally.
"If that's what the view of people is, that the best way to do this is to have a scorched earth policy and put people out of work and just make it red ink everywhere, I suppose that's one way to go," Mr Dixon said.
"Why wouldn't you say, here are two airlines that are very important to both countries, they (can) get together?"
Commissioner Paula Rebstock suggested the alliance would make it more difficult for Virgin to enter the market.
"It seems to me you have presented us with a powerful argument that the way to ensure New Zealand gets as much public welfare as possible would be to ensure Virgin Blue can enter and drive down costs and prices," she said.
"If one airline has to go to the wall, it might as well be the most inefficient one."
The airlines must win approval from the Australian Competition and Consumer Commission and the NZCC, which will announce its decision in late September.
Air NZ will this week present confidential evidence to the NZCC showing it would struggle to survive without the deal, Mr Norris said.
"The medium-term outlook for Air New Zealand is seriously adverse," he said.
But Mr Norris admitted next week's annual results would show the Kiwi carrier had benefited from global jitters over the SARS outbreak and war in Iraq.
==========================================
NPZA
Go cut-price, Easyjet tells Air New Zealand
August 20, 2003
Air New Zealand must prepare itself for a future without traditional full service airlines, the head of cut-price UK giant EasyJet said yesterday.
Easyjet chief executive Ray Webster told the New Zealand Commerce Commission's hearing into Air NZ's proposed alliance with Qantas that the challenge for full service airlines was whether they could adapt.
He said he believed Air NZ and Qantas had to consolidate, as they were both small compared with the "value-based airlines" in Europe and the US, which had low costs and travelled from point-to-point rather than operating a network.
"If I was running Air NZ I'd have to think about it a little bit, but traditional airlines really have to change. Long-haul airlines particularly have to think how they're going to take capacity out of that market because they're not going to be successful and apply it somewhere else," Mr Webster said.
In other words, it would no longer be possible to be all things to all people.
"Consumers, once comfortable that a low-cost airline is safe and reliable, do not want to pay more for air travel than they need to."
Full service airlines were likely to see an erosion of their fares across a large number of routes, even if a low-cost airline was not as frequent or travelled to all destinations.
"You can slow down the depletion of shareholder wealth but you can't stop it. In time a low-cost airline will win because of its superior cost base and highly specialised business processes," Mr Webster said. He advised Air NZ to begin "a slow retreat in the order of the next 10 years" from the domestic market, and concentrate on the long-haul market.
"Deregulation will eventually become global. The rules applying to short haul are exactly the same as will apply to medium and long haul."
That would be quite a challenge for Air NZ, which is losing money on its international routes, with the domestic market underpinning its profitability.
NZPA
=============================================
Last edited by Wirraway; 20th Aug 2003 at 02:50.
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Unfortunately Kiwi culture does not mirror that in Europe. In Europe people want it now and want it cheap, here in NZ they want business class service for economy prices, or just collecting and spending the various airpoints and incentive schemes that are a part of their psyche.
It'll take more than low cost ops to help Air NZ survive. My suggestion, get rid of the muppets running the show as a starter.
It'll take more than low cost ops to help Air NZ survive. My suggestion, get rid of the muppets running the show as a starter.
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NZPA
Day 3
Qantas says it could add 50,000 tourists for NZ
August 21, 2003
Qantas's holiday company said it would take an extra 50,000 tourists to New Zealand a year if the alliance between Qantas and Air New Zealand was allowed to proceed.
Qantas Holidays chief operating officer, Simon Bernardi, told an NZ Commerce Commission hearing in Wellington yesterday that it now had little incentive to market New Zealand extensively and did not sell Air New Zealand products.
However, if the plan for Qantas to take a 22.5 per cent stake in Air NZ for $NZ550 million ($45 million) were approved, Qantas Holidays would license the "powerful" Air NZ brand from the airline and market it internationally.
That was expected to bring an additional 50,000 tourists to New Zealand each year, mostly on travel packages.
"The alliance for us represents a growth story in terms of having access to the Air NZ brand," Mr Bernardi said.
"The alliance also sits very well with our strategic direction over the next five years, concentrating on inbound business to Australia as well as New Zealand. The key to our success is an ability to generate traffic."
Qantas Holidays deals with airlines such as Garuda and Thai International, but it had to get approval from Qantas and deals were not to have an impact on Qantas's strategic direction.
The holiday company was not allowed to use Air NZ at the moment "because it's not in Qantas's strategic interests", he said.
Qantas Holidays is a stand-alone business wholly owned by Qantas, and 70 per cent of business comes from outside Qantas. It sells 40 New Zealand destinations and had little incentive to increase that low margin business.
The alliance would change New Zealand from short-haul destination to a long-haul destination from Qantas Holidays' point of view, with better gross margins. Long-haul passengers to Australia and New Zealand would fly on a combination of the two airlines.
The dual destination of Australia and New Zealand would be marketed, but "We see promoting the mono [destination] as where we're going to the get bulk of customers to New Zealand."
Up to 75 per cent of Air NZ's long-haul traffic is inbound to New Zealand.
The Commerce Commission is hearing evidence until Monday on the proposed alliance, which it initially rejected in a draft determination in April.
NZPA
Day 3
Qantas says it could add 50,000 tourists for NZ
August 21, 2003
Qantas's holiday company said it would take an extra 50,000 tourists to New Zealand a year if the alliance between Qantas and Air New Zealand was allowed to proceed.
Qantas Holidays chief operating officer, Simon Bernardi, told an NZ Commerce Commission hearing in Wellington yesterday that it now had little incentive to market New Zealand extensively and did not sell Air New Zealand products.
However, if the plan for Qantas to take a 22.5 per cent stake in Air NZ for $NZ550 million ($45 million) were approved, Qantas Holidays would license the "powerful" Air NZ brand from the airline and market it internationally.
That was expected to bring an additional 50,000 tourists to New Zealand each year, mostly on travel packages.
"The alliance for us represents a growth story in terms of having access to the Air NZ brand," Mr Bernardi said.
"The alliance also sits very well with our strategic direction over the next five years, concentrating on inbound business to Australia as well as New Zealand. The key to our success is an ability to generate traffic."
Qantas Holidays deals with airlines such as Garuda and Thai International, but it had to get approval from Qantas and deals were not to have an impact on Qantas's strategic direction.
The holiday company was not allowed to use Air NZ at the moment "because it's not in Qantas's strategic interests", he said.
Qantas Holidays is a stand-alone business wholly owned by Qantas, and 70 per cent of business comes from outside Qantas. It sells 40 New Zealand destinations and had little incentive to increase that low margin business.
The alliance would change New Zealand from short-haul destination to a long-haul destination from Qantas Holidays' point of view, with better gross margins. Long-haul passengers to Australia and New Zealand would fly on a combination of the two airlines.
The dual destination of Australia and New Zealand would be marketed, but "We see promoting the mono [destination] as where we're going to the get bulk of customers to New Zealand."
Up to 75 per cent of Air NZ's long-haul traffic is inbound to New Zealand.
The Commerce Commission is hearing evidence until Monday on the proposed alliance, which it initially rejected in a draft determination in April.
NZPA
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DAY 4
Virgin Blue Seeks Concessions, NZ Terminal At Hearing
By Christopher Niesche
Of DOW JONES NEWSWIRES
WELLINGTON (Dow Jones)--Virgin Blue Ltd. will enter the trans-Tasman and New Zealand markets, whether or not there is an alliance between Air New Zealand Ltd. and Qantas Airways Ltd. ,the airline said Thursday.
But that didn't stop David Huttner, head of communication and strategy for the Australian airline, from seeking concessions from the New Zealand Commerce Commission at its hearing into the proposed alliance.
Qantas and Air New Zealand have argued at the hearing this week that their alliance will make it easier for Virgin Blue, jointly owned by Richard Branson's Virgin Group and Australian transport company Patrick Corp to enter those markets as the no-frills airline will have to grapple with only one competitor, instead of two.
They have also said that Virgin Blue's entrance will provide the competition needed to keep prices down.
Huttner agreed the alliance would ease Virgin Blue's entrance, but said how soon that entry can be made would depend on access to key airport facilities.
The airline said these barriers could be overcome with either the NZCC setting conditions or through commercial agreements made before the alliance is approved.
Huttner said Virgin is having trouble getting the terminal facilities it wants at Auckland International Airport Ltd. and suggested Qantas and Air New Zealand build a new terminal and move out of the one they are using to make room for his airline.
"We'll take their junky old terminal and they can build a new terminal," he said.
The airlines could pay for the new terminal out of the cost savings from the alliance, he said.
In May, Air New Zealand and Qantas offered to accept capacity constraints to ensure room in the market for Virgin Blue. But Huttner Thursday said he wasn't impressed and wanted the commission to toughen the constraints.
"While attractive in principle because (the capacity constraints) address a key weapon to stifle new entrant competition, the drafting of these needs to be tightened as the loopholes they wrote in are presently big enough to fly one of their aircraft through," he said.
However, Virgin will fly the trans-Tasman and domestic New Zealand routes regardless of the alliance and with or without the concessions, Huttner said when quizzed by the commissioners.
The NZCC's acting chairwoman, Paula Rebstock, questioned the airline's motives.
"Really, what you're coming to us now with is an attempt to get us to further tilt the pedals in your favor even though it's not required for you to enter the market," she said. "And that concerns me."
Under the proposed alliance, Qantas will take a 22.5% stake in Air New Zealand and inject NZ$550 million into the airline, and both airlines will cooperate across all common routes. In April, the NZCC and the Australian Competition & Consumer Commission rejected the alliance, with the NZCC saying it "wouldn't result in a net public benefit to New Zealanders."
Much of the evidence this week has been from economists hired by the two airlines to back up their case.
Huttner questioned the value of this evidence.
"While we have the highest respect for the various ';industry experts; who have commented on what may or may not occur five years down the track, I have yet to see a paper written five years ago that accurately predicted what would happen to the global aviation industry today," he said.
The NZCC expects to decide on the application around the end of September, but even if the two airlines are successful in Wellington, they will still have to convince the ACCC that their alliance isn't anticompetitive.
=========================================
Virgin Blue Seeks Concessions, NZ Terminal At Hearing
By Christopher Niesche
Of DOW JONES NEWSWIRES
WELLINGTON (Dow Jones)--Virgin Blue Ltd. will enter the trans-Tasman and New Zealand markets, whether or not there is an alliance between Air New Zealand Ltd. and Qantas Airways Ltd. ,the airline said Thursday.
But that didn't stop David Huttner, head of communication and strategy for the Australian airline, from seeking concessions from the New Zealand Commerce Commission at its hearing into the proposed alliance.
Qantas and Air New Zealand have argued at the hearing this week that their alliance will make it easier for Virgin Blue, jointly owned by Richard Branson's Virgin Group and Australian transport company Patrick Corp to enter those markets as the no-frills airline will have to grapple with only one competitor, instead of two.
They have also said that Virgin Blue's entrance will provide the competition needed to keep prices down.
Huttner agreed the alliance would ease Virgin Blue's entrance, but said how soon that entry can be made would depend on access to key airport facilities.
The airline said these barriers could be overcome with either the NZCC setting conditions or through commercial agreements made before the alliance is approved.
Huttner said Virgin is having trouble getting the terminal facilities it wants at Auckland International Airport Ltd. and suggested Qantas and Air New Zealand build a new terminal and move out of the one they are using to make room for his airline.
"We'll take their junky old terminal and they can build a new terminal," he said.
The airlines could pay for the new terminal out of the cost savings from the alliance, he said.
In May, Air New Zealand and Qantas offered to accept capacity constraints to ensure room in the market for Virgin Blue. But Huttner Thursday said he wasn't impressed and wanted the commission to toughen the constraints.
"While attractive in principle because (the capacity constraints) address a key weapon to stifle new entrant competition, the drafting of these needs to be tightened as the loopholes they wrote in are presently big enough to fly one of their aircraft through," he said.
However, Virgin will fly the trans-Tasman and domestic New Zealand routes regardless of the alliance and with or without the concessions, Huttner said when quizzed by the commissioners.
The NZCC's acting chairwoman, Paula Rebstock, questioned the airline's motives.
"Really, what you're coming to us now with is an attempt to get us to further tilt the pedals in your favor even though it's not required for you to enter the market," she said. "And that concerns me."
Under the proposed alliance, Qantas will take a 22.5% stake in Air New Zealand and inject NZ$550 million into the airline, and both airlines will cooperate across all common routes. In April, the NZCC and the Australian Competition & Consumer Commission rejected the alliance, with the NZCC saying it "wouldn't result in a net public benefit to New Zealanders."
Much of the evidence this week has been from economists hired by the two airlines to back up their case.
Huttner questioned the value of this evidence.
"While we have the highest respect for the various ';industry experts; who have commented on what may or may not occur five years down the track, I have yet to see a paper written five years ago that accurately predicted what would happen to the global aviation industry today," he said.
The NZCC expects to decide on the application around the end of September, but even if the two airlines are successful in Wellington, they will still have to convince the ACCC that their alliance isn't anticompetitive.
=========================================
Yes ABC,
With the politicians now involved, very strong similarities to this time two years ago on the other side of the Tasman. It is hard to see that the ANZ guys and girls will not face the same fate. With QF, EK and DJ all lining up for the challenge things are going to get very difficult for them.
The temptation is to claim sweet justice, although having been through the exercise advice for those concerned, It is not a lot of fun. As for the ANZ management, I'm afraid the sympathy stops there- couldn't happen to a bigger bunch of incompetent prats.
With the politicians now involved, very strong similarities to this time two years ago on the other side of the Tasman. It is hard to see that the ANZ guys and girls will not face the same fate. With QF, EK and DJ all lining up for the challenge things are going to get very difficult for them.
The temptation is to claim sweet justice, although having been through the exercise advice for those concerned, It is not a lot of fun. As for the ANZ management, I'm afraid the sympathy stops there- couldn't happen to a bigger bunch of incompetent prats.
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NZ "Sunday Star *Times"
Why controversial airline merger will be approved
24 August 2003
By ROD ORAM
Here's a brave prediction: the Commerce Commission will approve the Air New Zealand-Qantas alliance next month.
Or is it a foolish prediction? On face value, yes. The commission and its Australian counterpart, the ACCC, slammed the deal in their draft determinations earlier this year.
Professor Allan Fels, chairman of the ACCC at the time, said the proposal was "highly anti-competitive and offered very little benefit. It would be the end of competition".
Our commission rejected Air NZ's argument that it would only survive as an international carrier if it had a partner. Worse, the commission's economic analysis was the exact reverse of the airline's: it said the deal was heavy on costs to consumers and the country and light on benefits.
In June, the commission went further. Its revised figures from its economic model of the deal were more negative than its draft ones. It said the net impact of the deal would be in a range of negative $195.4 million-$466.5m, up from negative $155.7m-$401.8m.
But a lot has happened since then, much of it unfolding in five days of hearings on the proposed deal that the commission held in Wellington last week. For people like this writer who were unable to attend, the internet offered the next best thing. Transcripts of each day's hearing, posted on the commission's website (www.comcom.govt.nz), make riveting reading.
Over the first three days, Air NZ and Qantas powerfully stated their case for the necessity and benefits of the alliance and the competition it would face on New Zealand and trans-Tasman services.
Worldwide evidence showed that value-based airlines (VBA) like Virgin Blue were formidable competitors against full-service carriers (FSC) like Qantas and Air NZ. This domestic market was so small, only one FSC and one VBA could survive.
Qantas could afford the war because New Zealand and trans-Tasman services account for only 10% of its profits but 80% of Air NZ's. So without the alliance, Air NZ, as the weaker of the two FSCs, would have its domestic business decimated. If that happened, it could no longer support its international operations.
Similarly on the Tasman, Air NZ's cost would still be about 15% higher per seat than Virgin Blues, even after Air NZ's recent reconfiguration of its cost, business model and level of service.
Air NZ was also facing a rising tide of international carriers that flew into Australia and then added on a trans-Tasman leg on a marginal cost basis that allowed them to offer low fares.
Such so-called "Fifth Freedom carriers" already account for 25% of Sydney-Auckland seats and 44% Brisbane-Auckland.
The most powerful testimony of the week came from professor Robert Willig of Princeton University in the US. Speaking for Air NZ and Qantas, his analysis of the nature of international aviation competition should have left the commission with no doubt about Air NZ's acute vulnerability if it stood alone.
More tellingly, he discredited the economic model that the commission had used to generate its negative assessment of the proposed alliance. He pointed out that the commission had left out of its model the competition generated by foreign airlines flying the Tasman.
The airlines also delivered some additional but commercially sensitive analysis in closed sessions. This material focused, for example, on the financial impact on Air NZ if it was subjected from open slather competition from Qantas and Virgin Blue.
But above all, one of the strongest endorsements for the alliance came from an unexpected source: Virgin Blue. Under questioning from the commission, it conceded on Thursday that it would be better off with the alliance than without. Now it was starting to get some concessions from Air NZ on issues such as counter and gate space at Auckland airport, it intended to start operations over here.
The logic is clear: if the alliance was in place, Virgin Blue as a VBA with lower costs and lower fares has a natural competitive position against a combined Air NZ and Qantas. But without the alliance, the bloody three-way competition would do serious harm to them all.
So last week dealt potentially fatal blows to the two main planks of the commission's opposition to the alliance. Its draft determination said competition to the alliance would be severely restricted. But this was based on the assumption that Virgin Blue would not come here if it had to face the alliance and it ignored the foreign competition on the Tasman. Both conditions no longer apply.
Its second point of opposition was based on its modelling. But that has now been shown to be deeply suspect.
So it was no surprise that the commissioners shifted their ground during the week. Judging by their questions, they started the week very committed to their draft determination's view that there had to be some other more desirable solution to Air NZ's life-or-death strategic decision than to team up with Qantas.
But by the middle of Wednesday, the nature of their questions seemed to change. Rather than trying to attack Air NZ's logic, they were starting to probe to build their understanding of it. By Thursday, they were using some of Air NZ's information to challenge its opponents.
The ACCC's opposition was based largely on our commission's view about restricted competition and negative costs. Since then, the ACC has got a new chairman and has delayed its final decision until after our commission rules.
If it turns out the commission does change its mind - and the ACC follows suit ? it would be a triumph for the process rather than an embarrassment to the commissioners and their staff.
The long, arduous months of submissions, analysis and hearings have generated greater understanding of the issues. And crucially, the ground has shifted significantly towards the alliance facing greater competition.
Above all, there is a cautious, practical way forward for the commission. Rather than base its decision on theoretical models, it could put the alliance to a real test.
It could approve it for a period of, say, three to five years to see if the airlines lived up to the benefits they are promising, such as security and a large degree of autonomy for Air NZ, and to see if competition eventuates and if air fares remain reasonable.
If the alliance didn't deliver, it would be denied a renewal and would have to be unwound. That could be done because the airlines have built divorce procedures into their proposal.
But if the alliance passed the test, it would get approval for a further period, establishing a new and far more beneficial trans-Tasman business relationship than the branch plant economy model which has seen Australian companies dominate large sectors of the New Zealand economy.
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Why controversial airline merger will be approved
24 August 2003
By ROD ORAM
Here's a brave prediction: the Commerce Commission will approve the Air New Zealand-Qantas alliance next month.
Or is it a foolish prediction? On face value, yes. The commission and its Australian counterpart, the ACCC, slammed the deal in their draft determinations earlier this year.
Professor Allan Fels, chairman of the ACCC at the time, said the proposal was "highly anti-competitive and offered very little benefit. It would be the end of competition".
Our commission rejected Air NZ's argument that it would only survive as an international carrier if it had a partner. Worse, the commission's economic analysis was the exact reverse of the airline's: it said the deal was heavy on costs to consumers and the country and light on benefits.
In June, the commission went further. Its revised figures from its economic model of the deal were more negative than its draft ones. It said the net impact of the deal would be in a range of negative $195.4 million-$466.5m, up from negative $155.7m-$401.8m.
But a lot has happened since then, much of it unfolding in five days of hearings on the proposed deal that the commission held in Wellington last week. For people like this writer who were unable to attend, the internet offered the next best thing. Transcripts of each day's hearing, posted on the commission's website (www.comcom.govt.nz), make riveting reading.
Over the first three days, Air NZ and Qantas powerfully stated their case for the necessity and benefits of the alliance and the competition it would face on New Zealand and trans-Tasman services.
Worldwide evidence showed that value-based airlines (VBA) like Virgin Blue were formidable competitors against full-service carriers (FSC) like Qantas and Air NZ. This domestic market was so small, only one FSC and one VBA could survive.
Qantas could afford the war because New Zealand and trans-Tasman services account for only 10% of its profits but 80% of Air NZ's. So without the alliance, Air NZ, as the weaker of the two FSCs, would have its domestic business decimated. If that happened, it could no longer support its international operations.
Similarly on the Tasman, Air NZ's cost would still be about 15% higher per seat than Virgin Blues, even after Air NZ's recent reconfiguration of its cost, business model and level of service.
Air NZ was also facing a rising tide of international carriers that flew into Australia and then added on a trans-Tasman leg on a marginal cost basis that allowed them to offer low fares.
Such so-called "Fifth Freedom carriers" already account for 25% of Sydney-Auckland seats and 44% Brisbane-Auckland.
The most powerful testimony of the week came from professor Robert Willig of Princeton University in the US. Speaking for Air NZ and Qantas, his analysis of the nature of international aviation competition should have left the commission with no doubt about Air NZ's acute vulnerability if it stood alone.
More tellingly, he discredited the economic model that the commission had used to generate its negative assessment of the proposed alliance. He pointed out that the commission had left out of its model the competition generated by foreign airlines flying the Tasman.
The airlines also delivered some additional but commercially sensitive analysis in closed sessions. This material focused, for example, on the financial impact on Air NZ if it was subjected from open slather competition from Qantas and Virgin Blue.
But above all, one of the strongest endorsements for the alliance came from an unexpected source: Virgin Blue. Under questioning from the commission, it conceded on Thursday that it would be better off with the alliance than without. Now it was starting to get some concessions from Air NZ on issues such as counter and gate space at Auckland airport, it intended to start operations over here.
The logic is clear: if the alliance was in place, Virgin Blue as a VBA with lower costs and lower fares has a natural competitive position against a combined Air NZ and Qantas. But without the alliance, the bloody three-way competition would do serious harm to them all.
So last week dealt potentially fatal blows to the two main planks of the commission's opposition to the alliance. Its draft determination said competition to the alliance would be severely restricted. But this was based on the assumption that Virgin Blue would not come here if it had to face the alliance and it ignored the foreign competition on the Tasman. Both conditions no longer apply.
Its second point of opposition was based on its modelling. But that has now been shown to be deeply suspect.
So it was no surprise that the commissioners shifted their ground during the week. Judging by their questions, they started the week very committed to their draft determination's view that there had to be some other more desirable solution to Air NZ's life-or-death strategic decision than to team up with Qantas.
But by the middle of Wednesday, the nature of their questions seemed to change. Rather than trying to attack Air NZ's logic, they were starting to probe to build their understanding of it. By Thursday, they were using some of Air NZ's information to challenge its opponents.
The ACCC's opposition was based largely on our commission's view about restricted competition and negative costs. Since then, the ACC has got a new chairman and has delayed its final decision until after our commission rules.
If it turns out the commission does change its mind - and the ACC follows suit ? it would be a triumph for the process rather than an embarrassment to the commissioners and their staff.
The long, arduous months of submissions, analysis and hearings have generated greater understanding of the issues. And crucially, the ground has shifted significantly towards the alliance facing greater competition.
Above all, there is a cautious, practical way forward for the commission. Rather than base its decision on theoretical models, it could put the alliance to a real test.
It could approve it for a period of, say, three to five years to see if the airlines lived up to the benefits they are promising, such as security and a large degree of autonomy for Air NZ, and to see if competition eventuates and if air fares remain reasonable.
If the alliance didn't deliver, it would be denied a renewal and would have to be unwound. That could be done because the airlines have built divorce procedures into their proposal.
But if the alliance passed the test, it would get approval for a further period, establishing a new and far more beneficial trans-Tasman business relationship than the branch plant economy model which has seen Australian companies dominate large sectors of the New Zealand economy.
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