Qantas alliance would reduce predatory risk: Air NZ

By CHRIS DANIELS

The risk of predatory behaviour in the local aviation market will be reduced, not increased, if an alliance between Air NZ and Qantas is allowed to proceed, the High Court in Auckland was told yesterday.

Air NZ's lawyer, Jim Farmer, QC, said the aviation market had low barriers to entry, so such a thing would be unlikely under an alliance.

For predation to happen, an airline would dump capacity to force a new entrant out, then recoup its losses through putting up prices. This was simply not a viable strategy for the Air NZ-Qantas alliance, since barriers to entry were so low.

Any response to competition that was not predation - which is illegal - would be competitive.

Farmer criticised the Commerce Commission's dismissal of any suggestion that Air NZ was financially vulnerable. The commission had also suggested Air NZ could seek an alliance with another airline. This, said Farmer, had not been explored further, with the commission failing to even ask other airlines about this possibility.

Air NZ was not earning an economic return on its capital and if there was a period of three airlines competing domestically - it facing Qantas and Pacific Blue - then it was likely to be the weakest financially of the airlines that would need to get out.

Qantas wants to buy up to 22.5 per cent of Air NZ for $550 million. The Commerce Commission and its Australian counterpart have rejected the idea on grounds of anti-competitiveness.