Air NZ's Qantas deal looks even uglier says Commerce Commission

7.45pm

Air New Zealand's proposed alliance with Qantas looked even more unlikely to get off the ground today after the Commerce Commission increased its estimates of the deal's net detriments to consumers.

The commission and the Australian Competition and Consumer Commission (ACCC) rejected the deal in draft determinations in April on concerns about competition and increased air fares.

The commission said then the deal would likely result in $155.7 million -- $401.8 million in net detriments to consumers by its third year. Today it upped this figure to $195.4 million -- $466.5 million.

The commission said the revision released today had been generated by an audit of the calculations it used in its initial estimate and by the inclusion of technical corrections.

The methods and model used to prepare the estimates remained unchanged, the commission said in a statement, but it anticipated receiving submissions on them during a conference on the deal planned for August.

After the draft determinations were released in April the airlines questioned the commission's methods in arriving at its initial estimates.

Air NZ chief executive Ralph Norris said the airline was surprised at the commission's revised calculations.

"The commission's surprise release of its revised calculations suggest that there continues to be fundamental differences surrounding the correct approach to quantify the net public benefits of the alliance," Mr Norris said in a statement.

Submissions on the commission's draft determinations are due on June 20. Air NZ will give the commission its own calculations as part of its submission then, Mr Norris said.

Air NZ spokesman Glen Sowry told NZPA today the airline was still confident it could persuade the commission that the alliance's benefits would outweigh its detriments and the deal would go ahead.

National Party Transport spokesman Roger Sowry said the commission's new findings "confirmed our view that the travelling public will be short-changed in any proposed amalgamation".

On a national interest basis, the deal should be scrapped, Mr Sowry said.

"It's yet more clear evidence that New Zealand is on the wrong end of a deal that could see control of our national airline handed over to the Australians," he said.

Cross submissions are due on July 18 and the commission's final decision on the alliance is due by September 30.

Meanwhile, across the Tasman, the ACCC said yesterday the entry of Dubai-based airline Emirates Air to the trans-Tasman market was unlikely to provide enough competition to the alliance for the regulators to allow it to go ahead.

Senior commissioner Ross Jones told the Australian Financial Review Emirates' proposed service, "while desirable -- is fairly marginal and probably doesn't have a large competitive impact".

Mr Jones said entry by Virgin Blue would have a much greater effect on the ACCC's decision.

There are no guarantees Emirates will stay in the trans-Tasman market and aviation experts suggest that once it begins operating new long-range aircraft that are on order, it can fly direct from Auckland to Dubai and will skip the Tasman.

The Australian media said th e only definitely positive news for the alliance is that ACCC "terrier", chairman Allan Fels, will be retired by the time the Australian watchdog makes its decision. He will be replaced by Graeme Samuel, who will be more amenable to the proposal.

The Sydney Morning Herald said "some believe there will be more leniency in the interpretation of the Trade Practices Act under the Samuel regime".

The Qantas ruling will be Mr Samuel's first major test.

Commentators have said the only way the alliance is likely to get the green light is if Air NZ agrees to sell its valuable budget subsidiary Freedom Air to Virgin Blue.

- NZPA

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