Air NZ and Qantas to appeal watchdog's decision

7.00pm

Air New Zealand and Qantas plan to appeal against the Australian competition watchdog's final decision today against the airlines' proposed alliance.

The Australian Competition and Consumer Competition (ACCC)'s opposition to the proposal was no surprise, Air NZ and Qantas said.

However, it was a disappointment and Air NZ said it would join with Qantas to apply for review of the decision by the Australian Competition Tribunal (ACT).

Under the proposal, Qantas would take a 22.5 per cent stake in Air NZ for $550 million, and Air NZ would gain control of both airlines' flights to, from and within New Zealand.

The alliance has been publicly supported by the Australian government and Air NZ's majority shareholder the New Zealand Government.

However, it had to gain approval from the competition commissions on both sides of the Tasman. The New Zealand Commerce Commission is to release its decision later this month.

Air NZ and Qantas have criticised the Australian competition watchdog for not properly taking into account additional information since its initial firm rejection in April.

The man at the helm of the ACCC has changed since then, with former merchant banker Graeme Samuel taking over from Allan Fels, but the commission's attitude has not.

"There has been a stark contrast between the process followed by the New Zealand Commerce Commission and that followed by the ACCC," Qantas chief executive Geoff Dixon said today.

"The ACCC took a very narrow view of competition and consumer interests in its April draft determination, either ignoring or underestimating the significant structural challenges facing airlines around the world."

Air NZ and Qantas made concessions after the April draft ruling to allay competition concerns, such as capping prices and making room for other airlines to enter the trans-Tasman market.

Emirates began flying to New Zealand last month and Budget airline Virgin Blue has also taken up the gauntlet, negotiating for access and facilities at New Zealand airports and advertising for New Zealand flight crew.

However, it appeared to be too little, too late.

Air NZ chairman John Palmer said a successful appeal to the Australian tribunal would result in a hearing of evidence similar to the Commerce Commission's six-day conference last month.

Air NZ had played its hand as well as it could, Mr Palmer said.

"I don't think there's anything that makes good business sense that we could have done.

"Clearly we could have given away a whole lot of things that might have done something to persuade the regulator, but would that have made ongoing sense for our businesses and the competitive landscape?"

The airlines could appeal to the Australian tribunal before the Commerce Commission releases its decision.

Finance Minister Michael Cullen said today the decision was disappointing "but not unexpected given the tenor of the ACCC's draft determination".

Virgin Blue head of commercial operations David Huttner said today the airline would continue with its plans to expand into New Zealand.

"Certainly we'll have to look at alternatives, and we'll talk to Auckland Airport about finding alternative space for domestic operations at Auckland ...

"Right now all the domestic terminals at Auckland are pretty full, and if Qantas and Air NZ are competing with each other they're not going to give us a lot of space to get in there as well."

The ACCC's decision was not surprising, Mr Huttner said. "It had been widely indicated that it was going this way."

Kate Brown, a former Commerce Commission commissioner and head of Otago University's finance department, said the airlines would survive without the alliance.

"They're both the flag-carrying carriers, and if the governments of either New Zealand or Australia were really going to let them go under they've had plenty of opportunity to do so in the past."

The Commerce Commission would not copy the ACCC's decision for the sake of it, Prof Brown said.

Air NZ shares plunged 7c to close at 53c after gaining ground last week on speculation the alliance would be approved in New Zealand.

Qantas shares lost 16c to A$3.36 ($3.81).

- NZPA