Allies want change to flight terms

Virgin Australia and partner Air New Zealand want the competition regulator to drop conditions on their tie-up requiring them to keep a certain number of flights on trans-Tasman routes.

Virgin Australia and partner Air New Zealand want the competition regulator to drop conditions on their tie-up requiring them to keep a certain number of flights on trans-Tasman routes.

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.

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