Virgin Blue backs alliance

By CHRIS DANIELS aviation writer

Low-cost airline Virgin Blue, a long- time opponent of any alliance between Air NZ and Qantas, now says it will be better off should such a deal be allowed.

Virgin commercial head David Huttner told a Commerce Commission investigation yesterday that so long as certain provisions were made for the airline to get airport facilities when it expanded, it would prefer to fight a combined Air NZ- Qantas than the two separately.

The airlines are seeking permission from authorities on both sides of the Tasman for Qantas to take a 22.5 per cent stake in Air NZ and then integrate services operating to, from or within New Zealand.

Many of the airlines' arguments in favour of joining up depend on Virgin Blue flying domestically and across the Tasman, thus providing a restraint on any anti-competitive behaviour.

Acting commission chair Paula Rebstock asked Huttner if Virgin Blue was trying to get the commission to "tilt the field further in your favour" by asking for conditions.

Virgin Blue was going to come to New Zealand anyway, she said, and was going to compete aggressively.

Rebstock said it was not the commission's job to look after any player in the market.

Virgin Blue was in commercial negotiations with Air NZ and the commission had no business interfering.

"I'm having trouble seeing that there is a problem," said Rebstock.

Huttner was asked if Virgin Blue was faced with any restraints or barriers to its entry into New Zealand. He accepted that there were none, but there was the potential for a threat to its expansion plans.

This would come if Virgin, after asking for terminal or counter space at one of the airports, was unable to get it due to Air NZ and Qantas refusing.

If the alliance went ahead, the two airlines would surely be able to share space and resources, meaning that terminal space, for instance, could be handed to Virgin Blue.

The exact impact of Virgin's arrival was examined by one of the alliance's opponents soon after.

Phil Walker, chairman of Wellington International Airport and Glasgow Prestwick International Airport, who works for airport investor Infratil, said too much was being made of the airline and its prospects.

Air NZ and Qantas were claiming that it had costs far below their own, that it would set prices in the market and contribute to Air NZ's demise.

Not true, said Walker, who pointed to Virgin's business model being closer to a full service airline than a super-low-cost carrier like Ryanair in Europe and Southwest in the US.

Virgin Blue was pitching for business travellers in Australia, and operated out of the main airports, it paid commissions to travel agents, it used airbridges, it had arrangements with other airlines and put baggage through to other destinations - all things that the very low cost carriers did not do.

Walker said while Air NZ's costs were coming down, with the introduction of cheaper "express" style services, those of Virgin Blue were going up.

Even if Virgin had such low prices, the experience of other markets showed that traditional carriers could do well after low-cost airlines stimulated the business, not just "cannibalised" travellers.

Profits for the low-cost carriers had been overstated, with a small number doing extremely well, while many lost money, or made very little.

The commission will hear more submissions from parties opposed to the alliance today. Air NZ and Qantas will make another submission on Monday, with the commission expecting to issue its final decision by the end of next month.