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ACCC proposes to deny authorisation for Virgin Blue/Air New Zealand alliance

10-Sep-2010 10:36 AM

Australian Competition and Consumer Commission issued (10-Sep-2010) a draft determination proposing to deny authorisation for an alliance between Virgin Blue and Air New Zealand on their flights between Australia and New Zealand. Under the alliance, the airlines would take a coordinated approach to a range of issues including pricing, revenue management, schedules, capacity and routes flown. ACCC Chairman, Graeme Samuel, stated the commission is concerned the alliance would reduce competition on the trans-Tasman services. The ACCC is also concerned that the alliance is likely to increase the likelihood of coordinated conduct on the trans-Tasman, taking into account the resulting increase in concentration and removal of the constraint posed by Pacific Blue. The ACCC accepts that the alliance is likely to result in some of the public benefits claimed by the applicants such as cost savings and efficiencies. However, the ACCC has doubts about the magnitude of these benefits. The commission also acknowledged the airlines’ argument that the alliance will enable them to compete more effectively against the Qantas-Jetstar group. However, the ACCC is not convinced that this necessarily creates a dynamic in the trans-Tasman market that is fundamentally more competitive. The ACCC is now seeking submissions from interested parties by 24-Sep-2010. [more]

Virgin Blue announced (10-Sep-2010) that it and Air New Zealand have welcomed the ACCC's invitation to provide information to substantiate the public benefits claimed. Air New Zealand also announced (10-Sep-2010) it is reviewing the draft decision and expects to respond to the ACCC’s concerns once they are identified, over the coming weeks. [more - Virgin Blue]

Australian Competition and Consumer Commission: "The ACCC considers that the alliance is likely to reduce competition in the market for trans-Tasman air passenger services. The ACCC believes that Virgin Blue is a significant competitor to Air New Zealand and there are a number of trans-Tasman routes where the alliance raises competition concerns. These routes account for around one quarter of passenger traffic in the trans-Tasman market. This means that more than one million passengers per year may be adversely affected by the removal of competition between Virgin Blue and Air New Zealand," Graeme Samuel, Chairman. Source: Australian Competition and Consumer Commission, 10-Sep-2010.