Airlines accused of changing tune to sweeten regulators

By CHRIS DANIELS

Air New Zealand and Qantas, appealing for the right to join forces in an alliance, have been accused of changing their arguments in order to win favour with competition regulators.

The claim was made in the High Court at Auckland yesterday by Commerce Commission lawyer Hugh Rennie, QC, who said the airlines were trying out different reasons for why an alliance should be allowed, while abandoning economic research previously used to support their case.

Initially, when applying to the commission in 2002, the airlines had claimed a looming "war of attrition", where Qantas would overwhelm the weaker Air NZ. They accepted there would be some anti-competitive features of the alliance, but the overall benefits would outweigh any negatives.

This then became an argument that the airlines needed to combine to face the threat of low-cost carriers such as Pacific Blue.

Rennie said another change had now occurred with Qantas and Air NZ maintaining they had to join forces to face off the threat of "full service airlines" such as Emirates as well as Pacific Blue.

Another change was that, where once the airlines accepted some detriment through a loss of competition, they now said there would be no such negative, with the threat posed by rivals enough to keep prices down.

Qantas and Air NZ had used capacity to show relative market share to the High Court, but this took no account of whether planes were full or not.

Rennie said of the 48 transtasman routes (with Auckland to Sydney one, Sydney to Auckland another), the two airlines would have 100 per cent market share on 24. They would have more than 70 per cent on another eight, 60 per cent on another four, with the lowest market share of 49 per cent on the Christchurch-Melbourne-Christchurch route.

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

This plan was rejected by competition regulators in both countries last year. The result of a Qantas appeal to the Australian Competition Tribunal is pending and Air NZ is appealing to the High Court.

Ticket price hikes predicted by the Commerce Commission if the alliance proceeded ranged from a low of 5 per cent on flights between Auckland and Asia to 24 per cent on the domestic main trunk and 22 per cent on the Tasman.

Air NZ and Qantas are the only two airlines flying nonstop between New Zealand and North America. They claim that Emirates or a US airline would start flying the route if they increased prices too steeply.

Travel company Gullivers and airport investment company Infratil are due to fight the appeal later this week.