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Open Skies Backgrounder

Q. What are the main features of the new agreement?

A. The agreement:

 Allows the airlines of Australia and New Zealand to operate services from their home country beyond the other country over any route they choose, and with as many flights as they see fit. Previously these “beyond rights” were limited.
 Removes the requirement for airlines to file fares for approval, thereby reducing compliance costs and allowing airlines to respond promptly to market conditions.
 Removes the ability of one country to refuse to accept designation of an airline by the other country based on the amount of foreign investment in that airline.
 Allows for “seventh freedom” traffic rights for cargo, allowing airlines from both countries to establish cargo operations in the other country.
 Allows for the possibility of extending “seventh freedom” traffic rights to passenger services, which would enable the establishment of an international airline business in the other country.
 Commits both countries to mutual recognition of aviation related certification, thereby allowing airlines to eliminate duplication of certification processes and achieve operating efficiencies.

Q. What does all this mean for New Zealand?

A. The potential benefits to New Zealand are great. Australia is New Zealand’s most important economic partner, and this agreement allows our Closer Economic Relations to become closer still.

Basically it means Australian and New Zealand airlines can make commercial decisions based solely on market considerations and opportunities, rather than subject to government regulation.

In relation to New Zealand’s tourism market, this agreement offers the possibility of a boost in tourist numbers, particularly from the Northern Hemisphere. It gives our airlines the ability to offer services to a single Australasian destination in other parts of the world, thereby creating substantive benefits for our tourism industries. Over half the tourists coming to New Zealand from the Northern Hemisphere also visit Australia.

For exporters the news is also potentially positive, as the agreement enables greater competition in the cargo markets. Previously cargo services by Australian or New Zealand airlines would have had to begin in the airlines’ home country. Now the airlines can offer services based in the other country to third countries, thus potentially increasing competition. It is uncertain that cargo operators will take up these opportunities, but the agreement allows them to do so if they choose to.

Q. What about the individual New Zealander? What difference will it make to my travel plans?

A. The agreement potentially gives the travellers much greater choice in their global travel options. The previous limitations on beyond rights meant services were limited to the equivalent of 12 Boeing 747 services per week, and to a maximum of 11 countries. The removal of those restrictions means that New Zealand travellers could see more frequent flights to particular destinations as well as giving travellers a greater choice of destinations and a greater choice of routes to get to those destinations. Of course all these possibilities depend on how the airlines choose to respond to the new commercial environment the agreement offers.

There is also the possibility that fares may fall slightly because airlines should be able to compete more under the new agreement. While previously they have not been always been able to fly the most direct route to a destination, they can now choose the most efficient route. The mutual recognition section of the agreement also offers the potential for savings for the airlines as they integrate their fleets and better utilise their aircraft.

It should be noted that trans Tasman airfares are currently very competitive. Having said that, the wider opportunities provided should result in greater competition between airlines and logically cheaper fares should flow from greater competition.

Q. What about the issue of foreign ownership of New Zealand airlines? Does this agreement allow for Australia or another country to dominate our international airline industry?

A. No. While the new agreement does remove airline ownership foreign investment restrictions, the New Zealand government’s policy remains the same on this issue. That policy requires that designated New Zealand international airlines will continue to be required to be substantially owned and effectively controlled by New Zealand nationals.

Q. How does this fit in with other air agreements New Zealand has?

A. New Zealand is at the forefront of aviation liberalisation. While this is Australia’s first “open skies” agreement, New Zealand has 10 such agreements. It also has 35 other air services agreements.

International air services play a key role in New Zealand’s trade relationships with most of its major markets. Efficient, market-driven international air services are therefore vital to New Zealand’s trade success.

The basis of New Zealand’s policy is the consideration that airlines are best placed to make decisions regarding the level of capacity and frequency offered in a market, and pricing options. The Government role is therefore one of constructing an environment which creates maximum opportunity for airlines to respond to market requirements, developing prices and services of maximum benefit to New Zealand business and consumers.

New Zealand’s advocacy of a liberal approach to air rights negotiations in recent years has generally served New Zealand well over the years. It has been particularly successful in helping to facilitate rapid and sustainable growth in international visitor numbers and assists New Zealanders wishing to travel overseas by giving them a greater choice of carriers, destinations, and fares. Exporters and importers have found the additional capacity to be beneficial too, with the value of air cargo to and from New Zealand also increasing strongly. Finally, the policy has been good for Air New Zealand, which has profited from greater competition and opportunities. It has improved performance and has been able to offer better services and cheaper fares as a result.

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