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Saving Air NZ: Everyone Heads For The Courts

Note: Scoop is a supporter of the Save Air New Zealand campaign...

Everyone Heads For The Courts

Air New Zealand Returns To The Commerce Commission And Repeats Itself, JUST SAYING THINGS LOUDER

Update #2 Of The Save Air New Zealand Campaign

As round two of the Commerce Commission review of the Air New Zealand-Qantas Alliance gets underway, Air New Zealand has reminded everyone that its initiative is bold, smart, innovative and commercially necessary.

Without actually providing any evidence to support any of these assertions.

In case the Commerce Commission doesn't find the evidence buried in the airlines' "hundreds of pages of submissions" Air New Zealand has also said that it is planning to take legal action if they don't get the result they want.

However, remember that Air New Zealand said it would take legal action if the Minister of Commerce didn't accept the Commerce Commission recommendation to regulate Auckland airport. When she said she didn't accept the recommendation the airlines changed their minds about a legal challenge.

To recap the law of challenging the commission:

Any party to the regulatory review of the airline merger can take legal action against Commerce Commission's final decision on one of two grounds:

1. Disagreement as to fact or interpretation - "your arithmetic is wrong" or "your logic is wrong".

This is a tough course as a judge has to be convinced that the Commerce Commission (who are acknowledged experts) have made material errors and reached the wrong conclusion. This is the avenue Air New Zealand is talking about.


2. Disagreement that Commerce Commission has followed correct (as defined by the Commerce Act) procedures.

In particular the Infratil submission (prepared by Chapman Tripp) has stated that it disagrees with the process followed by Commerce Commission and it considers that their error of process means that legal challenge could occur after the final decision.

This line of legal endeavour is likely to be more productive than that presently advocated by Air New Zealand.

The legal rules governing how the Commerce Commission must run such inquiries is clear and if they breach the rules they can be obliged to re-start the process.

This may sound interminable and it is.

Therefore it looks quite likely that, come what may, no positive decision could be provided to the airlines before 2005!

I.E. even if Commerce Commission changed its mind and authorised the transaction, it could still be delayed a year!

Somewhat perversely this may not bother Air New Zealand, albeit they will never admit this is so.

Given the lack of anything new in their second round submission, wonders if perhaps they have lost interest in the deal with Qantas?

Air New Zealand's strategy of saying the same old things, just slower and louder doesn't look that likely to turn over the Commerce Commission's findings that the deal will cost New Zealand $2,000 million in its first five years.

Why have they lost interest?

In 2002 their backs may have been to the wall. Today they look in pretty good shape to see off Qantas.

It is Qantas that is now looking a bit ruffled, what with SARs and the War on Terror taking a toll on their business.

Thus increasingly this whole process has come to look like a way for Air New Zealand to buy time to get its house in order while Qantas sits on the sidelines.

Ralph's case boils down to: The Alliance is a bold initiative, it is smart and innovative, it is commercially necessary.

Air NZ Says: Air New Zealand isn't insulated against industry developments.


* Forming an alliance with a competitor that has a different business strategy is bold, smart, innovative?

* Air New Zealand's market cap is the same as it was in Dec 2002 when the bold initiative was announced. Qantas' has fallen A$500m.

* Is anything not going well for Air New Zealand now?

Air NZ Says: Air New Zealand's independent economists still think the numbers show the deal to be good for NZ.


* The Commerce Commission economists have looked at it twice and it keeps getting worse. Air New Zealand has already submitted once on the Commerce Commission figures.

* Prof Tim Hazeldine has found numerous errors in the airlines' numbers.

Air NZ Says: Without the deal Air New Zealand will fail again


* Air New Zealand's one and only failure came about from an ill advised initiative into Australia. The rest of its business has never failed and shows no sign of failing now.

Air NZ Says: Airfares will not rise.


* Up until a year ago domestic air travel costs in NZ were up approximately 70% over the decade while international air travel costs had fallen over the same period. The difference, the domestic market was competitive.

* Ultimately Air New Zealand is right. The Alliance is all about attempting to increase airfares, but it will not succeed over the medium term. But in attempting to increase fares Air New Zealand will lose sight of its only way to survive and prosper, being to lower costs and "express-ize" its entire operation.

* Airlines such as Emirates and Royal Brunei are irrelevant for "value" carriers. High service/cost airlines do not gain custom from Freedom Air.

Air NZ Says: To ensure that third party airlines can squeeze in Air New Zealand/Qantas will "allow" competitors to take a specified share of the market.


* I.E. rather than having Air New Zealand, Qantas and Virgin competing, we will have none competing as even Virgin will have been bought off. Worst possible scenario.

Air NZ Says In an alliance it will be to Air New Zealand's and Qantas' mutual advantage to attract an additional 50,000 visitors to New Zealand.


* The NECG modelling work undertaken for Air New Zealand showed that there was not a logical case for Qantas to spend to encourage additional tourism to NZ.

* There has not been any evidence that the alliance will change the incentives to encourage additional tourists to come to NZ.

* Air New Zealand's marketing focuses on "NZ destination". Qantas' marketing focuses on "Qantas". All NZ can expect from the Alliance is a weakening of the airlines spend on marketing destination NZ.

Points not noted by Air New Zealand in the summary of their second submission:

* How does Air New Zealand and NZ make up for the loss of membership of the Star Alliance? An Alliance that makes up almost 25% of commercial air travel.

* How does Air New Zealand Express fit with Qantas' full service/fare approach?

* What part of the business isn't doing OK?

* If Freedom can return its cost of capital as a Trans-Tasman airline, doesn't that indicate it is the way to go? How would Air New Zealand's further roll-out of Freedom fit with Qantas?


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