Airline case reaches jet-lag length

By CHRIS DANIELS, aviation writer

Courtroom No 12 - the biggest in the High Court at Auckland, will be handed back to the people today, marking the end of Air New Zealand's appeal against the Commerce Commission rejection of its alliance plan with Qantas.

For the past four weeks eminent QCs and North American aviation economists have laid out their cases before Justice Rodney Hansen and Kerrin Vautier, a lay specialist in competition law and economics.

Qantas wants to buy up to 22.5 per cent of Air NZ for $550 million. The airlines then want to co-ordinate services on all their flights to, from and within New Zealand.

They argue that any potential damage to consumers caused by the loss of a full-service rival will be offset by the potential for competition from a low-cost airline - primarily Virgin Blue's New Zealand operation, Pacific Blue.

The Commerce Commission rejected their application last year, as did Australian regulators. Both airlines have appealed, each on their home side of the Tasman.

Commerce Commission lawyer David Goddard, QC, yesterday said that even if airfares dropped after an alliance between the two airlines was set up, there would nevertheless be a "substantial lessening of competition" since these prices would still be higher than if it were not allowed.

"The aspects of the alliance that will lessen competition - in particular, price fixing and agreed capacity reductions - are certain to result from the alliance proceeding," he said.

The airlines had painted a "rosy scenario" under which entry and expansion by other airlines was so fast and extensive that prices and capacity would be the same regardless of whether the alliance went ahead.

"But there is no reason to think that this scenario is likely - their optimism lacks sound foundations, and many factors point to a much less rosy outcome in which prices are permanently higher and consumers permanently worse off," he said.

He told the court that its rejection of the alliance plan was "the safer of the two options".

If the airline's appeal was rejected, and Pacific Blue or some other airline set up quickly and could constrain any alliance, then Qantas and Air NZ could make a new application, based on better information.

Air NZ's lawyer, Jim Farmer, QC, referred to several cases that he said showed examples of a court making its own assessment of arguments made at lower courts or to specialist bodies like the commission.

The court had been able to hear better evidence than the commission, evidence from people being tested under cross-examination.

Efficiencies would come from the alliance and increased profitability would come from these, not from charging monopoly prices.

Justice Hansen compared the case to "an extended and gargantuan banquet". He and Vautier now needed to digest it all before working out "what to regurgitate and in what form".

He said this process would "take a little time".

Different courses

Justice Rodney Hansen has reserved his decision. Along with lay expert Kerrin Vautier, he will now start working on whether to allow or reject Air NZ's appeal.

He could partially allow the appeal, sending it back to the Commerce Commission with suggestions about how it should deal with the alliance application.

He could also throw out the commission's decision and allow the alliance to proceed. This would inevitably provoke another appeal to the Court of Appeal from alliance opponents.

The airlines have yet to get clearance from Australian authorities for the deal. More legal action is possible across the Tasman, whether the Australian Competition Tribunal approves the deal or not.