Fran O'Sullivan: Competition concerns offloaded

Cartel buster Paula Rebstock is being forced to stand to one side while a Government majority-owned company tries to get ministerial endorsement to set up an anti-competitive duopoly.

Unfortunately for Air New Zealand passengers, the attempts by "their airline" to get a cartel operating across the Tasman has not been met with the much-needed dawn raids, computer seizures and all the other weapons that Rebstock has used when trying to tackle cartel behaviour.

The accepted line is that the Commerce Commission's recent raid on Air NZ predates its dealing with Qantas over the Tasman route, though neither side is disclosing details.

The commission's chairwoman has taken on some big companies in recent times with her strong stance being defended by various Commerce Ministers. It is also in line with the tough approach taken by Australia's competition regulator, Graeme Samuel, who has made something of a fetish out of his own high-profile, trust-busting activities.

But, incredibly, ministers see no conflict in the way Air NZ and Qantas are essentially accorded a legislative protection blanket while they plot and scheme.

This country's competition regulator has slapped down the airlines' mark one cartel as clearly anti-competitive, pointing to damaging effects for consumers. But, instead of taking their medicine like other private-sector players, the airlines have sulked. They've cut out the middleman and have sought ministerial approval instead through a loophole in the transport laws.

It's no secret that Air NZ has been beating a path to Cabinet ministers' doors for months now. The airline is lobbying MPs by using its "government relations team" to try and build support for backdoor approval for the transtasman mark two cartel.

The business sector has been remarkably quiet over the Air NZ/Qantas plans. But it will be its small to mid-sized members trying to build transtasman businesses who will pay the price when the airfares are hiked if the ministers agree to the proposal.

Major companies will not be hit so hard as they benefit from discounts based on the volume of business they bring to the respective airlines.

But the transtasman market is vitally important to New Zealand businesses which undertake significant cross-border trade. This trade will grow as a single market between the two countries deepens and Australia's investment footprint over New Zealand gets larger. Inevitably, there will be more bums on seats - not less - making a nonsense of the airlines' rhetoric.

Wellington International Airport is effectively the sole leader of the charge against the back-door plan to legitimise the reborn cartel. Its big brother further north - Auckland International Airport - has tended to play a behind-the-scenes role, letting the capital player bear the brunt of the cartel's anger at its temerity to try to protect its patch from the rationalisation of transtasman flights. The Wellington airport's position is clearly one of self-interest: Its cashflow is strongly dependent on landing fees and through-put.

Auckland airport is also facing pushback from major international airlines, particularly Air NZ, over the level of its landing fees.

The airline believes Auckland is acting as a monopolist by trying to push up overall fees as far as the captive market will bear in a city that does not sport a suitable secondary airport for either domestic or international travel in the way many "world-class" cities do.

Auckland airport wants the standard departure fee - which it intends to increase above the present $25 - to be included in air tickets, rather than paid separately at the airport. It also wants to reduce the age exemption for the fee to below 12.

Air NZ played rough by trying to disclose Auckland's proposed hike - which would have been a breach of the usual commercial-in-confidence agreements that surround such negotiations - and was slapped back into line by High Court judge Rhys Harrison.

The commission called for price controls to be applied after Auckland lifted its landing charges by 5 per cent in 2001 but the Government decided against regulation, preferring to let commerciality rule.

Auckland airport players are not keen to go on the record about the proposed cartel. They do not say so directly - but implicit in background comments is a concern the company will be subject to price regulation if they open a war against Air NZ on to more than one front.

Also implicit is the concern the Government is prepared to endorse anti-competitive behaviour when it suits its own investment position.

Air NZ is not categorised as a state-owned enterprise or even a crown-owned corporation. But to all intents and purposes it may as well be.

The Government owns 85 per cent of Air NZ and appoints the board. Finance Minister Michael Cullen is the key "shareholding minister" and is now a reluctant source of new capital for the airline's expansion.

International airlines chew cash. The obvious backstop for Air NZ when it got into trouble five years ago was the then shareholder, the well-heeled Singapore Airlines. It sought to increase its stake and assist in the recapitalisation of the company but Cullen bowed to Qantas' urgings and slapped SIA down.

Instead of going to the market for a capital-raising exercise and issuing new shares to private investors, Cullen has fallen into line with Air NZ's "cry wolf" complaints.

The Government has signalled it wants to use SOEs as "agents of economic transformation".

Cabinet ministers have floated the prospect that minority stakes could be sold in various SOEs - through issuing shares in subsidiary companies.

It has also signalled it is prepared to rewrite competition rules in sectors where it has a vested commercial interest.

The backdoor moves by Air NZ and Qantas to get their planned transtasman cartel to fly is a useful insight into what could be on offer as SOEs are refashioned into "agents of economic transformation". Competitors should beware.