Allies want change to flight terms
The airlines are making their pitch to regulators for a five-year extension to their trans-Tasman alliance, which has been in place since January 2011 but expires at the end of this year.
The airlines are required to maintain a base level of flying on the Tasman, as well as increase seasonal flights on certain routes such as Melbourne and Sydney to Wellington.
In their application to the Australian Competition and Consumer Commission, the airlines said the conditions should be dropped because over the past 18 months they had lowered fares due to boosting capacity, which prompted responses from Qantas, Jetstar and Emirates.
Virgin and Air New Zealand have argued the conditions have the "potential to create significant distortions and inefficiencies" on trans-Tasman routes.
They cite their inability to change flights from Australia to Christchurch in response to a big drop in demand since the earthquake in February 2011.
But the airlines may find it difficult to persuade the ACCC to drop the conditions.
In approving the Qantas-Emirates alliance this week, the regulator required them to keep capacity on four overlapping trans-Tasman routes at existing levels. The ACCC imposed the conditions because it was concerned Qantas and Emirates could limit growth in flights in order to raise fares.
The latest pitch comes as investors doubt whether Virgin can convince the regulator to approve its proposed bid for a controlling stake in Tiger Australia.
It is the last big aviation deal before the competition watchdog.
Commonwealth Bank analyst Matt Crowe said there was a significant risk that the regulator would block the bid because Virgin Australia chief executive John Borghetti appeared unwilling to agree to boosting Tiger's fleet.
"The overwhelming majority of mergers obtain regulatory approval ... [but] we believe there is a significant risk that this one may be blocked in the first instance," he said.
Frequently Asked Questions about this Article…
Virgin Australia and Air New Zealand have asked the Australian Competition and Consumer Commission (ACCC) to drop the current flight‑level conditions on their trans‑Tasman tie‑up and to approve a five‑year extension of their alliance, which has been in place since January 2011 and expires at the end of this year.
The airlines want the conditions requiring them to maintain a base level of flying on the Tasman and to increase seasonal services on certain routes (for example, Melbourne and Sydney to Wellington) — essentially the rules that force them to keep a certain number of trans‑Tasman flights.
They say the conditions can create "significant distortions and inefficiencies," point to their lowering of fares after boosting capacity over the past 18 months (which drew responses from Qantas, Jetstar and Emirates), and note the rules limited their ability to change services such as flights to Christchurch after the February 2011 earthquake.
When approving the Qantas‑Emirates alliance the ACCC imposed conditions requiring existing capacity to be maintained on four overlapping trans‑Tasman routes because it was concerned the partners could limit growth to raise fares — a stance that suggests the regulator may be cautious about removing similar conditions for Virgin and Air New Zealand.
The airlines argue the conditions cause distortions, while the ACCC has previously imposed capacity conditions out of concern that limiting growth could lead to higher fares, so any change could influence capacity dynamics, competition and fares on trans‑Tasman routes.
The article says investors are doubting whether Virgin can convince the ACCC to approve its proposed bid for a controlling stake in Tiger Australia; the Tiger bid is described as the last big aviation deal before the competition watchdog.
Matt Crowe warned there is a significant risk the ACCC could block the bid because Virgin Australia CEO John Borghetti appeared unwilling to agree to boosting Tiger's fleet; he noted that while most mergers get regulatory approval, this particular deal may face a block.
Yes — the airlines cited their inability to change flights from Australia to Christchurch in response to a large drop in demand following the February 2011 earthquake as an example of the conditions restricting operational flexibility.
Call 1300 880 160
Start a chat
Schedule a call
