Experts quizzed on airline ties

By CHRIS DANIELS

A lineup of heavyweight economic experts are holding court in the High Court at Auckland, as the merits of an Air New Zealand-Qantas tie-up are debated this week.

Air NZ is appealing against the Commerce Commission's rejection last year of its application to set up an alliance with Qantas.

Under the scheme, Qantas would pay about $550 million for a 22.5 per cent shareholding in Air NZ. It would then fix prices and co-ordinate all its services operating within, to or from New Zealand.

New York University professor Janusz Ordover was asked yesterday whether increased market concentration necessarily equalled higher prices for consumers.

He was also questioned on differences between the United States aviation market and that in New Zealand and Australia.

He said that from what he had learned, conditions in the local market were "very susceptible" to competition.

One of the issues being explored by the lawyers and various economists is what would happen to airfares if the number of airlines in the local market dropped by one.

Air NZ argues that the presence of a low-cost carrier, namely Pacific Blue, will be enough to constrain prices.

Its opponents say evidence shows that the removal of one market participant will almost always lead to price rises.

Air NZ lawyers are expected to question the commission's economic experts today, challenging assumptions and techniques used when putting together its model predicting what impact such an alliance would have on the travelling public.

The entire case is expected to last at least another two weeks.

A decision from the Australian Competition Tribunal - the organisation to which Qantas appealed its regulatory rejection - is still pending.