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Substantial Concessions Made by Air NZ Qantas

Air New Zealand And Qantas Offer Substantial Concessions To Australian Competition Regulator

Air New Zealand and Qantas filed a submission with the Australian Competition and Consumer Commission (ACCC) on Friday evening in response to the regulator’s draft determination on the proposed Alliance between the two airlines.

Air New Zealand Managing Director and CEO, Ralph Norris said that the undertakings offered to the ACCC are significant and are a considerable expansion, in both extent and detail, on the proposed undertakings included in the original submissions.

“These new undertakings represent significant movement from both Air New Zealand and Qantas and should alleviate the concerns raised by the ACCC in its draft determination relating to possible anti-competitive activity, the ability of a new entrant to compete, and ensuring that the public benefits claimed by the airlines will eventuate.

“The Alliance, if approved by the ACCC with these undertakings, will ensure that both Australia and New Zealand have sustainable and independent airlines focused on the needs and requirements of the travelling public and exporters in both countries.

“Our submission to the ACCC is designed to give the ACCC additional comfort that prices will not be increased as a result of the Alliance. Air New Zealand has already demonstrated through the very successful introduction of its Express Class that lower prices stimulate business and contribute strongly towards the establishment of a sustainable profitable business. Higher prices are not in the interest of the airlines anymore than they are in the interests of the consumer.

“The undertakings provided to the ACCC are also designed to give a new entrant, most likely Virgin Blue, unimpeded access to the trans-Tasman and domestic New Zealand market. While this represents a significant concession on our part, we will rely on the new entrant not to abuse this position at the consumers’ expense.

“The ACCC made it clear in its draft determination that some significant concessions were required by Air New Zealand and Qantas for the Alliance to be approved. We believe that the scale of the concessions we have made should address the Australian regulator’s concerns. The New Zealand and Australian Governments have also voiced their support of the Alliance and we felt it was important to demonstrate that we are serious about seeing this Alliance approved,” said Mr Norris.

The airlines’ submission contains ten substantive undertakings that both Air New Zealand and Qantas believe address the regulator’s concerns.

The provision of facilities and services to give effective access to new entrants on Tasman and Domestic New Zealand routes. This includes gates, slots, counter facilities, maintenance and ground handling.

To make entry more attractive for a new entrant, there are to be no increases in the Alliance’s combined capacity on any route for 18 months following a new entrant announcing its intention to enter the route.

For a period of three years after the approval of the Alliance, Freedom Air cannot operate direct services between main gateways in Australia (Sydney, Melbourne and Brisbane) and main gateways in New Zealand (Auckland, Wellington and Christchurch) once a new entrant has commenced operations on that sector. Freedom will continue to be able to operate from the main gateways to secondary airports in the other country.

Freedom has undertaken not to operate domestic New Zealand flights between Auckland, Wellington and Christchurch. Freedom’s Tasman fleet, (currently four aircraft) will not grow by more than one aircraft per year.

The Alliance will lease up to four B737-300’s to a new entrant on normal commercial terms to ensure that they have the critical mass for substantial and effective market entry.

For up to five years from the approval of the Alliance, Qantas and Air New Zealand will not reduce capacity on Tasman city pairs or between Auckland, Wellington and Christchurch in domestic New Zealand unless load factors fall below 70% or yields fall for three consecutive months.

A restriction for up to five years on increases on some Tasman fares.

Qantas and Air New Zealand undertake to commence operating: eight weekly flights (four return services) between Auckland and Adelaide within one year of the approval of the Alliance; and two weekly flights (one return service) on each of the following city pairs within one year of the approval of the Alliance: Auckland – Hobart; Wellington – Canberra; Auckland – Canberra

Air New Zealand and Qantas will spend an additional A$5.4m on a new business plan for Qantas Holidays to generate an additional 50,000 tourists to New Zealand. This includes A$1.75m spent in conjunction with national and regional tourism bodies.

The Alliance will operate two return night freight services per week from Auckland to Australia and Christchurch to Australia with wide-bodied aircraft.

Air New Zealand and Qantas are continuing to work on their substantive response to the New Zealand Commerce Commission’s (NZCC) draft determination. This submission, which includes responses to 67 questions will be submitted to the NZCC by June 20th. The submission will also include evidence and undertakings appropriate to the case before the Commerce Commission.

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