Airline alliance 'flawed'

By CHRIS DANIELS aviation writer

Serious economic and legal doubts about allowing Air New Zealand and Qantas to join forces in an alliance have been raised before a Commerce Commission conference.

The airlines are seeking permission from authorities on both sides of the Tasman for Qantas to buy a 22.5 per cent stake in Air NZ and then integrate services operating to, from or within New Zealand.

As New Zealand's competition regulator, the Commerce Commission is holding a conference to investigate the proposal.

Auckland University economics professor Tim Hazledine yesterday told the commission that the idea was flawed.

Hazledine said the proposed alliance was a cartel, that would lead to a substantial lessening of competition in the aviation market.

He criticised the economic modelling techniques used by the two airlines, saying they failed to account for the difference in a "full service airline" like Qantas and Air New Zealand, and the "value-based airline" such as Virgin Blue.

They offered a different service, and if ticket prices were all the same, most consumers would go on the airline that had the better service.

His bottom line was that New Zealand consumers would lose somewhere between $50 million and $300 million a year as a result of the cartel. Not all would come in the form of higher ticket prices, as there would be new, useful flights that would not now occur with the two airlines cooperating.

All of the benefits that the two airlines claimed would happen should they be given permission by the commission were actually threats.

They involved either not to do something that made commercial sense (such as Qantas not using New Zealand engineering facilities), or to do something that did not make commercial sense.

An aviation consultant employed by alliance opponents, David Stone, said it could cost Air NZ as much as $50 million in penalty payments should it leave the Star Alliance.

The Commerce Commission is hearing more submissions on Monday, including a right of reply presentation from Air NZ and Qantas.