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Commission rejects proposed Airline Alliance

Commission rejects proposed Alliance

Media Release

Issued 23 October 2003-04/055

Air New Zealand and Qantas: Commission rejects proposed Alliance as not in the interests of New Zealanders

The Commerce Commission considers that a proposed Alliance between Qantas Airways Limited and Air New Zealand Limited would damage competition and harm consumers and is therefore not in the interests of New Zealanders.

In issuing its Final Determinations today, the Commerce Commission declined to authorise the proposed acquisition by Qantas of 22.5 percent of the voting equity in Air New Zealand and a strategic alliance between the two companies.

Commission Acting Chair Paula Rebstock said that the Commission considered the proposed alliance would result in a substantial lessening of competition in a number of markets.

"For the travelling public that could mean airfares that were, on average, up to 19 percent higher, as well as reduced quality of service, and fewer flights.

"That can be justified in circumstances where there are sufficient economic benefits overall to New Zealand. The Commission is not satisfied, however, that there would be such benefits to outweigh the detriment resulting from the loss of competition.

"Although Virgin Blue's entry on Tasman and New Zealand main routes, and the presence of other international airlines on the Tasman route, have some impact on the relevant markets, the competition provided by these carriers is not sufficient to allay all of the Commission's concerns," she said.

Ms Rebstock said that the Commission could not agree with the airlines' submission that there would be a tourism benefit to New Zealand.

"The Commission agrees with the airlines that the increase in the price of airfares would result in a net decrease of foreign tourists, despite proposed increased tourism efforts of both Air New Zealand and Qantas."

"In addition, the Commission found that 190,000 New Zealanders would be deterred from travelling overseas due to the increases in airfares. The Commission cannot accept the airlines' case that there is a net benefit to New Zealand as a result of New Zealanders having to holiday at home each year because they can't afford to travel overseas," Ms Rebstock said.

In its final determination, the Commission's view is that the overall detriment expected to result from the proposed alliance would clearly outweigh the expected benefits. The detriments are likely to be $195 million, and the benefits $40.5 million in Year 3 largely due to cost savings.

"With a total net loss to the public of $154.5 million in Year 3 if the proposed alliance were to proceed, the Commission has determined to decline both the application by the two airlines to enter into a strategic alliance and the application by Qantas to acquire up to 22.5 percent of Air New Zealand's enlarged share capital," said Ms Rebstock.

A public version of the decision will be shortly available on the Commission's website in the Air New Zealand/Qantas section.

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