Virgin faces battle to ease Tasman rules
The airlines want the Australian Competition and Consumer Commission to drop orders that require them to retain a certain number of flights on the routes.
But airports and councils claim removing the conditions will lead to the airlines reducing flights in a bid to raise fares. Opponents also want any extension of approval for the alliance limited to three years - not the five years requested by Virgin and its cornerstone shareholder Air New Zealand.
Christchurch Airport said it was "strongly opposed" to the competition regulator giving unconditional approval to the alliance, citing a rise in average fares to the city since the alliance began in early 2011.
While not opposing the tie-up, the airport said there was frustration about a lack of capacity on routes to Christchurch despite a rebound in demand since an earthquake in 2011.
Wellington Airport and the capital city's councils also said it was imperative that conditions remained to prevent the airlines reducing capacity and increasing fares.
"To have their alliance re-authorised without continuation of capacity conditions will have the effect of substantially lessening competition in the trans-Tasman air passenger market between Wellington and Australia," a group representing the airport and councils said in a submission to the regulator.
"The alliance currently finds itself in a position of significant market power and, if permitted to use this power unencumbered, it has the potential to ... restrict capacity and enhance its profitability."
Emirates has previously stated its opposition to a relaxation of the conditions on its rivals.
In seeking a five-year extension to their tie-up from the regulator, Virgin and Air New Zealand have argued the conditions have the "potential to create significant distortions and inefficiencies". They have also argued the conditions should be dropped because, over the past 18 months, they lowered fares by boosting capacity, which prompted responses from Qantas, Jetstar and Emirates.
The two airlines have a combined market share of almost 57 per cent on the trans-Tasman, route compared with about 40 per cent for Qantas, Jetstar and Emirates.
Frequently Asked Questions about this Article…
Virgin Australia and Air New Zealand are asking the Australian Competition and Consumer Commission (ACCC) to relax or drop conditions that require them to keep a minimum number of flights on trans‑Tasman routes and to extend approval of their alliance. New Zealand airports and city councils oppose loosening those conditions, arguing it could lead to reduced flights and higher fares.
Airports and councils say removing capacity conditions would let the alliance reduce services to raise fares. Christchurch Airport pointed to a rise in average fares since the alliance began in early 2011 and said there is frustration about lack of capacity to Christchurch. Wellington Airport and local councils also say conditions must remain to prevent reduced capacity and increased prices.
The disputed conditions require the alliance to retain a certain number of flights on trans‑Tasman routes. Virgin and Air New Zealand are requesting a five‑year extension of their tie‑up; opponents want any re‑authorisation limited to three years.
The two airlines argue the conditions can create significant distortions and inefficiencies. They also say that over the past 18 months they lowered fares by boosting capacity, which prompted competitive responses from Qantas, Jetstar and Emirates.
According to the article, Virgin Australia and Air New Zealand have a combined market share of almost 57% on the trans‑Tasman route, compared with about 40% for Qantas, Jetstar and Emirates.
Emirates has previously stated its opposition to relaxing the conditions on its rivals. Qantas and Jetstar were mentioned as responding competitively after Virgin and Air New Zealand boosted capacity, but the article specifically notes Emirates’ opposition to a relaxation.
A change in ACCC approval or removal of capacity conditions could alter competitive dynamics on trans‑Tasman routes. If conditions are lifted and capacity is reduced, airports and councils warn fares could rise. For investors, that means regulatory decisions could affect airlines’ revenues, pricing power and market structure—so regulatory risk and changes in capacity/fare trends are relevant to watch.
Investors should monitor ACCC consultations and the submissions from airports, city councils and airlines, watch official updates on the duration of any re‑authorisation (three years versus the five years requested), and track market indicators cited in the article such as capacity levels and average fares on trans‑Tasman routes.
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