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 a growing frustration about a lack of capacity on routes to Christchurch despite a rebound in demand since an earthquake caused major damage in 2011.
Echoing the concerns, Wellington Airport and the capital city's councils 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.
Qantas and Emirates' won approval for their own alliance from the ACCC in March but the airlines are still waiting for a decision from New Zealand Transport to allow them to extend it to the Tasman.
The ACCC will force Qantas and Emirates to keep capacity on four overlapping trans-Tasman routes at pre-alliance levels.
Frequently Asked Questions about this Article…
Virgin Australia and Air New Zealand want the Australian Competition and Consumer Commission (ACCC) to drop orders that require them to retain a certain number of flights on trans‑Tasman routes and to grant a five‑year extension to their alliance approval, saying the conditions can create distortions and inefficiencies.
New Zealand airports (including Christchurch and Wellington), city councils and competitors such as Emirates oppose loosening the conditions because they say removing them could allow the alliance to reduce flights, restrict capacity and push up fares, substantially lessening competition.
Opponents argue that removing capacity conditions would make it easier for the alliance to cut flights and restrict capacity, which could lead to higher average fares and reduced competition on trans‑Tasman routes—outcomes the airports and councils want to prevent.
Christchurch Airport said average fares to the city have risen since the alliance began in early 2011 and flagged growing frustration about a lack of capacity on routes to Christchurch despite demand rebounding after the 2011 earthquake; Wellington Airport echoed the need to keep conditions to prevent capacity cuts and fare increases.
The two airlines have a combined market share of almost 57% on the trans‑Tasman route, compared with about 40% for Qantas, Jetstar and Emirates.
The airlines say the conditions have the 'potential to create significant distortions and inefficiencies' and point out that over the past 18 months they boosted capacity and say that action lowered fares and prompted competitive responses from Qantas, Jetstar and Emirates.
The ACCC approved a Qantas‑Emirates alliance in March but required Qantas and Emirates to keep capacity on four overlapping trans‑Tasman routes at pre‑alliance levels, showing the regulator can impose capacity conditions when it grants alliance approval.
Investors should watch the ACCC's decision and whether any extension is granted for three years (as opponents want) or five years (as Virgin and Air New Zealand request), because the regulator's ruling could influence competition, capacity, fare trends and the potential profitability or market power of the airlines on trans‑Tasman routes.
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