Skies open to new entrants says Air NZ

By CHRIS DANIELS

Air New Zealand says the aviation market in this part of the world is open to competition and has questioned whether there is room for three airlines flying domestic routes.

Speaking at the High Court at Auckland yesterday, arguing the airline's appeal to be allowed to form an alliance with Qantas, Air NZ lawyer Jim Farmer, QC, highlighted evidence from New York University professor Janusz Ordover, who thought it implausible that there would be substantial price rises after any alliance.

The "flow" of new firms coming into the market indicated that there were no significant entry barriers and that it was open to competition.

"What we are seeing is competition as it ought to be," Farmer said.

At the core of much of the presentations during the appeal is what effect consumers will see from a reduction of competing parties from three airlines to two. (A joint Air NZ-Qantas facing Pacific Blue.) The airlines say prices will not be able to rise much, if at all, since such an increase will provide a perfect opportunity for Pacific Blue.

The Commerce Commission and airline opponents say that any reduction in the number of competing parties will be bad for prices, since the market will be missing one player. Even if Pacific Blue responds to higher prices from the alliance, consumers will, for a time at least, be paying more than they should.

There is also the possibility that the low-cost airline - in this case, Pacific Blue - will not have to offer ticket prices as low as would normally be the case.

Farmer said that low-cost airlines "don't buy into cosy duopolies" and this went against their whole business model.

Qantas wants to buy up to 22.5 per cent of Air NZ for $550 million. The airlines then want to fix prices and co-ordinate services on all their flights to, from and within New Zealand.

On some routes, such as between Auckland and North America, they would have 100 per cent market share.

Competition regulators in Australia and New Zealand rejected the idea last year, saying it was too anti-competitive. The airlines are appealing this decision to the High Court in New Zealand and are awaiting the result of a similar appeal in Australia.

The case is expected to continue throughout next week and the start of the following week.

* Air NZ's $1.4 billion order for new jets from US plane maker Boeing will be put to shareholders at a meeting in Auckland on August 5. The large size of the deal means it has to be approved by shareholders.

The money will go on two 7E7 "Dreamliners", which have yet to go into production, and eight Boeing 777-200 ER (extended-range) jets, four of which it will own, while leasing the others.