"The commission's preliminary view is that the proposal would likely result in a substantial lessening of competition in a number of markets."
The airline markets listed were the New Zealand main trunk and provincial markets, the Tasman market, the New Zealand-Pacific market, the New Zealand-Asia market, and the New Zealand-US market.
The commission said it also had concerns about international and domestic freight markets.
It said the airlines had calculated that the detriments of the alliance, including harm done to consumers through higher fares, would be about $10.3 million at year three. However, the commission's preliminary view, was that the detriment to the New Zealand public would be in the range of $202-$432 million a year.
The applicants estimated the benefits arising from the alliance would be $236.3 million at year three.
"The commission's estimates suggest the public benefits attributable to the proposed alliance are likely to be in the range of $30.2 million to $46.3 million per annum," Mr Belgrave said.
"In the commission's preliminary view, the overall detriment expected to result from the proposed alliance would clearly outweigh the expected benefits."
Meanwhile, Australia's competition watchdog, the Australian Competition and Consumer Commission (ACCC), said today it proposed to reject the Qantas-Air NZ tie-up.
The ACCC said the deal was very anti-competitive and would remove competition on the trans-Tasman route.
The ACCC said it was hard to see any undertaking by the airlines meeting its concerns about a tie-up.
"The effect of the alliance would be to remove competition on that important route (the transTasman), and would be likely to raise prices and reduce services," ACCC chairman Allan Fels told a briefing.
The ACCC also considered that Qantas and Air New Zealand had underestimated Air New Zealand's future ability to compete if the proposed alliance did not proceed.
"Air New Zealand is currently competing very strongly with Qantas. Management initiatives in the cost and fare structure areas have contributed to the airline predicting very good financial results for 2002/03. These projections were recently re-affirmed even in the face of the current challenging conditions."
Air NZ chief executive Ralph Norris said the rejection was not a complete surprise, but said it was disappointing.
"We are disappointed that the commission has rejected totally the counterfactual that we put up and has also significantly discounted the tourism benefits that we put up," he told National Radio.
"We are very strongly of the view that the application we put up was a very strong one and we are obviously now considering our position going forward."
Despite the powerful opposition from regulators, Mr Norris still believes the deal can go ahead.
"It is now up to us to go back to the commission... and convince them of the validity of the numbers we've put forward."
He declined to go into possible concessions, like selling discount carrier Freedom Air, that the airlines might make to win regulatory approval for the deal.
"This is about the value of benefits, rather than an issue of undertakings at this point."
The Commerce Commission will take submissions from interested parties on its draft conclusions until May 9. It plans to hold a four-day conference on May 20-23 to answer questions on the draft decision and will release its final determination by the end of June.
Qantas shares were a cent weaker at A$3.06 ($3.42) following the announcement, while Air NZ was trading down 2 cents at NZ46 cents.
- REUTERS
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Qantas and Air NZ draft determinations
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