Virgin Blue threatens trans-Tasman pull out

Virgin flies to and from NZ under the Pacific Blue name. Photo / Brett Phibbs

Virgin Blue may abandon trans-Tasman routes after its alliance plans with Air New Zealand were dealt a blow by Australia's competition regulator, which issued a draft decision denying them permission to merge.

The Australian Competition and Consumer Commission (ACCC) said there were a number of routes between New Zealand and Australia where the alliance raised competition concerns.

Virgin Airlines founder Sir Richard Branson told the ABC it was possible Virgin Blue could pull out of the trans-Tasman route, which would leave Qantas and Jetstar with the lion's share of the market.

"We're losing money on those routes to New Zealand," he told the ABC's Sunday Profile.

"We think if we can work together with Air New Zealand we can offer a proper competitor to Qantas.

"If we're a strong competitor, we can keep fares low and we can keep Qantas honest and we believe that's in the interest of the travelling public."

Trans-Tasman flights could become more expensive if Qantas and Jetstar are left to dominate, he said.

He was baffled by the ACCC's decision, as it had allowed alliances involving airlines much bigger than his.

Air New Zealand and Virgin Blue had proposed an alliance that involves collaboration on future route and product planning, code sharing and frequent flyer programme benefits.

The airlines said it would deliver cheaper airfares, increase frequency, better connections, and expand lounge access.

The ACCC accepted that an alliance would have public benefits, such as reduced prices, but said it had doubts about the magnitude of those benefits.

The regulator said it was also concerned that the alliance was likely to increase the likelihood of co-ordinated conduct on routes between New Zealand and Australia.

Centre for Asia Pacific Aviation executive chairman Peter Harbison on Friday told NZPA he was surprised with the ACCC draft decision, considering the partnership was not as far reaching as the Air New Zealand-Qantas proposed merger, and did not believe it would stand.

"It doesn't seem to me to stack up all that well, frankly," he said.