Chris Daniels: Air NZ turns up in court with new bogeymen

Air New Zealand has changed its tune. Dire laments on a bloody war of attrition and inevitable defeat by Qantas have disappeared, replaced by a chorus of transtasman mateship against the world.

In the High Court at Auckland yesterday, Jim Farmer, QC, began putting the case for Air NZ to join erstwhile rival Qantas in an "alliance", saying the Commerce Commission got it wrong when it threw out the application last August.

During his day-long presentation, Farmer - a former chairman of the airline - often used the word "merger", before correcting himself and saying "alliance" instead.

He outlined a different argument that now pits the two airlines against the world, rather than at each other's throats.

Last year Air NZ was telling the commission that without a deal it would be gobbled up and spat out by its bigger and richer neighbour, but the new story is that they are not really competing properly anyway.

Qantas wants to buy up to 22.5 per cent of Air NZ for $550 million. The carriers then want to jointly control all their flights to, from and within New Zealand.

The alliance would have a 60 per cent market share on the Tasman route.

This plan was comprehensively 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.

"Qantas is no longer a primary competitive focus in short-haul markets," Farmer told the court.

The main threats were newcomers Pacific Blue and Emirates.

Both these airlines were competing in similar ways against both Air NZ and Qantas - Pacific Blue as a low-cost, budget carrier, and Emirates as a rich, huge and expansive airline with global ambitions.

The alliance plan that Air NZ presented to the commission last year was a rational and competitive response to this situation, said Farmer.

Faced with pressure from low-cost carriers, the successful "full-service airline" needed to increase in size, making up for the loss in market share.

"What is good for Air NZ and Qantas is good for consumers," he said, putting a modern spin on the famous comment by 1950s General Motors chairman Charles Wilson.

The loss of competition from an alliance "is not a major issue", said Farmer.

If there were no barriers to entry for rival carriers, then a high market share did not necessarily mean a high level of market power.

The "merged firm" would be constrained by the threat of new rivals setting up, or existing ones expanding.

The High Court was also treated yesterday to a re-hearing of the curious case of the "Emirates Hub".

Air NZ chief executive Ralph Norris told the Australian Competition Tribunal in May that he had confidential information showing that Emirates planned to build a major international hub in Auckland.

This hub was yesterday downsized and attributed to the media rather than Norris, with Farmer saying there had been "media comment to the effect" that Emirates was looking at setting up "something of a mini-hub" in Auckland.

Emirates has denied it has any such plan.

Farmer is expected to spend today concluding Air NZ's opening submission.

The commission will then present its case, no doubt arguing that if things have changed as much as the airline claims, then it should make a new application for an alliance, not appeal against an old rejection.

Airport investor Infratil and travel company Gullivers will then finish off the week with their submissions.

The entire case is expected to last at least four weeks, with next week likely to be dominated by arguments over rival economic theories and modelling techniques.