Air NZ trumpets Virgin

By CHRIS DANIELS aviation writer

A budget airline such as Virgin Blue will provide enough competition to keep fares cheap under any alliance deal with Qantas, says Air New Zealand.

The airline's latest plea to the Commerce Commission for permission to join forces with Qantas has been published, and rests on the prospect of Virgin Blue providing suitable competition.

The commission, as New Zealand's competition regulator, provisionally rejected the airlines' plans in April - both the Qantas request to buy 22.5 per cent of Air NZ, and a joint application from them to set up a arrangement that would fix fares, schedules and bookings to, from and within New Zealand.

Air NZ's submission, addressing the entry of a "VBA", or value-based airline, says Virgin Blue's plans are clear: it intends to use five of its Boeing 737 aircraft to fly either the Tasman or domestic New Zealand routes.

This "imminent entry" of Virgin Blue to these markets will stop the joint Air NZ-Qantas entity from putting up fares too high, says the submission.

Raising prices would be like giving a rival a "free ticket" to their market, they say.

Every successful entry of an airline such as Virgin Blue had led to a reduction in fares.

One of the biggest differences in the attitude of the commission to that of the airlines is what would happen if the alliance was not allowed to proceed - called the "counterfactual".

Air NZ and Qantas argue that a "war of attrition" would occur, with cut-throat competition in the New Zealand domestic market leading to the ultimate demise of its most profitable business.

Qantas, with deeper pockets, would keep expanding its New Zealand services, taking more and more business from Air NZ.

The commission disagreed. It said such a response from Qantas would be irrational, cost it plenty of money, and would have happened by now had it been true.

In the new submission, the two airlines clarify what they mean by this "war of attrition", saying the expected Qantas increase in capacity would cause a steady wearing down of Air New Zealand.

The commission's use of former Air New Zealand executives as advisers came in for some thinly veiled criticism by the two airlines in their latest submission.

It says the commission appeared to have preferred the views of former directors and managers who did not have access to current information.

* Interested parties have until Friday, July 18, to make cross submissions on the latest analysis submitted by Air New Zealand and Qantas.

The Commerce Commission will then hold a public conference in mid-August.

It expects to make its final decision on the applications by the end of September.