Virgin/Air NZ deal approved

Consumer watchdog says airlines' trans-Tasman alliance likely to benefit public.

Virgin Australia Holdings (VAH) and Air New Zealand have conditional authorisation from the consumer watchdog for an extension of their trans-Tasman alliance.

In a statement to the Australian Securities Exchange, the groups say authorisation will commence on January 1, 2014, when the existing authorisation expires, and last until October 31, 2018.

Investors were little fussed with the news. At the 1015 AEST official market open, Virgin shares were flat at 40.5 cents, against a benchmark index lift of 0.27%.

The Australian Competition and Consumer Commission says the alliance is likely to result in material public benefits and promote competition on trans-Tasman routes, particularly for business travellers.

"The alliance will allow the two airlines to offer enhanced products and services, such as new frequencies and increased access to loyalty program benefits and lounges," ACCC Commissioner Jill Walker said.

Without the alliance, Virgin Australia's trans-Tasman operations would be more limited than its key competitors, while Air New Zealand would be at a competitive disadvantage to the Qantas-Jetstar/Emirates alliance because of its more limited access to the Australian market, the ACCC said.

The watchdog said the alliance is unlikely to reduce competition on most trans-Tasman routes, but is concerned the deal may affect competition on routes between Christchurch-Melbourne, Christchurch-Brisbane, Wellington-Brisbane, Queenstown-Brisbane, Auckland-Gold Coast and Dunedin-Brisbane.

To address these concerns, the ACCC is imposing conditions to require the airlines to maintain aggregate base capacity across the routes and will review the airlines' capacity additions in light of actual demand growth over the next two years.

The commission also requires airlines to provide key performance data at the end of each scheduling season to help it assess whether the deal is hurting competition.

Virgin chief executive officer John Borghetti welcomed the determination, saying it would allow the airline to continue to offer consumers a better choice of flights, improved connections and increased capacity on the Tasman.

"We have also worked together to promote tourism throughout regional Australia and New Zealand," he said.

“We welcome today’s decision by the ACCC as it will enable us to continue to work together for the benefit of consumers, tourism and business in Australia."

Virgin last week posted a full-year loss and declined to provide guidance for the year ahead.

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