Airlines admit 'code share' is joint business

Qantas and Air New Zealand are proposing to operate as a joint business on the Tasman. Picture / Mark Mitchell

Air New Zealand and Qantas have admitted to Australia's competition watchdog that they will effectively operate as a joint business on the Tasman if their proposed code share agreement is allowed.

Opponents of the deal, including Wellington International Airport, have long argued that it goes far beyond a normal code share and is more like a cartel or merger.

Responding to queries from the Australian Competition and Consumer Commission the airlines seem to come close to conceding the point.

The ACCC asked them why joint setting of tariffs (fares) was so important.

They replied that the agreement provided for the two airlines to jointly determine which Tasman routes would be served, how often and when, and the total capacity to be made available on each route.

To use that agreed capacity "most efficiently" both airlines would have to be indifferent to whether they booked a passenger on one of their own flights or one of the other's.

"The applicants must effectively operate as a joint business. In other words they must have the ability to develop sales targets, forecast load factors and to manage yields and share revenues as one," they told the ACCC.

"The ability to jointly determine tariffs is an essential part of this process."

The airport company, in a long submission to the Ministry of Transport released today, says: "This is not a case of two Australasian companies teaming up to take on the world. It is a case of two dominant companies colluding within their home markets."

It says the United States Department of Transportation approach to such matters carves out from anti-trust immunity the sorts of things that are most offensive about the proposed Tasman Network Agreement, such as meeting to fix prices and co-ordinate yield management, and the pooling of revenues.

It disputes the airlines' claim of over-capacity on the Tasman routes.

Both Air New Zealand and Qantas last year had load factors - the percentage of seats filled - on the Tasman which were above the average (70 per cent) for all airlines flying into and out of Australia.

The airport company notes that the airlines say they intend to lift their combined load factor over three years from 72.7 per cent now to between 75 and 76.5 per cent.

"That is, they currently leave 27.3 per cent of seats empty and that is a disaster but would consider it okay to leave 25 per cent of seats empty three years into the agreement."

The airlines contend they cannot afford to unilaterally reduce capacity.

But Wellington Airport points out that both Qantas and Air New Zealand already have unilaterally cut capacity, by a combined 323 seats a day.

For Wellington the almost complete loss of competition is critical, it says.

Pacific Blue flies only three times a week, between Wellington and Brisbane, and Emirates and other airlines will not add a Wellington leg to their Australian flights because of the capital's short runway.

And the airport company fears collusion will spill over into the domestic New Zealand market.

Airline staff would meet every week and would be well placed to make agreements about local flights.