Air New Zealand-Virgin Blue announce trans-Tasman alliance

As foreshadowed last week, Air New Zealand and Virgin Blue Airlines Group have announced their intention to seek regulatory approval to create an alliance on the trans-Tasman markets linking Australia and New Zealand. The proposed alliance aims to allow the airlines to “strengthen their competitive offering on the trans-Tasman” and to collaborate on future route and product planning, codesharing and frequent flyer programme links.

No equity, international routes only

The proposed alliance will connect regional centres in Australia and New Zealand, but only as part of a Tasman journey and does not include domestic-only travel in either Australia or New Zealand. The airlines stress the agreement is not a signal of intention by Air New Zealand or Virgin Blue to take a shareholding in the other. The proposed agreement will have four key components:

1. A broad free-sale code share arrangement covering:

  • All Tasman sectors currently operated by either airline;
  • Domestic Australian sectors as part of a connecting Tasman journey;
  • Domestic New Zealand sectors as part of a connecting Tasman journey.

2. A revenue allocation agreement under which:

  • Revenue generated across all Tasman sectors currently operated by either airline, or which may be developed under the agreement, will be allocated between the two carriers, and;
  • A joint trans-Tasman Network Planning & Revenue Management Team representing both airlines will oversee the Tasman operation.

3. A frequent flyer cooperation agreement that will provide reciprocal loyalty scheme benefits to members of Air New Zealand's Airpoints loyalty programme and Virgin Blue's Velocity Rewards programme.

4. A lounge cooperation agreement that will ensure lounge access to qualifying guests of either airline.

The airlines said that while the proposed alliance is a significant development for both carriers, it would not impact or place restrictions on any existing partnerships or alliances of either airline, downplaying a potential move by Virgin Blue into the Star Alliance, of which Air New Zealand is a member.

Air New Zealand CEO, Rob Fyfe said the alliance, if approved, will be “one of several measures to improve the airline's competitive position on the trans-Tasman in the face of the Qantas Group's two-airline move for regional dominance”.

He added, “simple moves like integrating schedules, allowing customers to book multi-sector journeys on one code, providing reciprocal loyalty scheme benefits and reciprocal lounge access for qualifying customers will be a compelling proposition for leisure and business travellers on both sides of the Tasman."

Mr Godfrey added, “Virgin Blue is close to unveiling our 'Airline of the Future' concepts which in our tenth year will reveal the fresh direction of the 'new blue' and likewise Air New Zealand has signalled its future product and design direction”.

See CAPA analysis: Virgin Blue-Air New Zealand “cooperation”. A game-changer - perhaps

Regulatory reviews to take six months

Air New Zealand and Virgin Blue stated they have had trans-Tasman teams working on the alliance proposal for “some months” and will file applications with the Australian Competition and Consumer Commission and the New Zealand Ministry of Transport. The regulators are expected to take around six months to review the applications prior to authorisation.

Reflecting caution about potential regulatory responses, outgoing Virgin Blue CEO, Brett Godfrey, stated the alliance would “stimulate a new wave of competition in Australasian aviation”. Mr Fyfe added, “this additional market stimulation is likely to allow Air New Zealand and Virgin Blue to harness the alliance benefits to start new routes or fly additional frequencies."

The airlines stated, “as a result of these improved services, it is expected that the alliance will attract more passengers on Air New Zealand and Virgin Blue services. "This will mean more seats and more low fares than ever before on the Tasman," said Mr Godfrey.

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