ACCC authorises Air New Zealand-Virgin Blue alliance – with conditions on Wellington routes

The ACCC’s determination was conditioned in two main ways: (i) by requiring capacity commitments on Wellington routes and (ii) by limiting the authorisation to three years (until 31-Dec-2013) instead of the five years that the airlines sought.

This reflected the position that, "the ACCC is still concerned that the Alliance may affect competition on a number of routes between Australia and New Zealand, particularly routes involving Wellington. However, the ACCC has imposed a number of conditions on authorisation which are designed to address these competition concerns." The capacity arrangement will ensure that the carriers actually increase capacity out of Wellington on selected city pairs and, in doing so, ensure that the airlines will be much less inclined to raise fares on those routes.

The alliance proposed relates only to routes between Australia and New Zealand, providing for a coordinated approach to a range of issues including pricing, revenue management, schedules, capacity and routes flown.

Following the receipt of “a substantial amount of information from the applicants and interested parties about the likely public benefits and detriments” since its initial rejection of the proposal, the ACCC now "considers that the Alliance is likely to benefit passengers in a number of ways including more choice of routes and frequencies, and potentially lower fares as a result of cost savings and efficiency improvements".

The original rejection of the application surprised many, particularly in light of the fact that Virgin Blue had already announced its withdrawal from the New Zealand domestic market. Also, some three years previously, the Australian Competition Tribunal had also overruled an ACCC determination, by approving a much more far-reaching agreement between Qantas and Air New Zealand.

In these circumstances most observers had seen the much more limited application by the Air New Zealand and Virgin Blue to be almost a shoo-in.

By delaying the process, the ACCC has achieved little – and, in the course of the delay, impeded the necessary revival of Virgin Blue as a serious competitor to the much bigger Qantas.

The agreement must now be approved by the New Zealand Ministry of Transport (as this is a codeshare arrangement, NZ Commerce Commission approval is not required). This is regarded as a near-formality now that the ACCC has approved the alliance move.