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Capacity proviso on Virgin/Air NZ trans-Tas extension

September 9, 2013 Aviation, Headline News No Comments Email Email

egtmedia59The Australian Competition and Consumer Commission (ACCC) has given the go ahead for Virgin Australia and Air New Zealand to continue their trans-Tasman alliance next year and for years to come, subject to capacity control conditions. The existing authorisation was due to expire at the end of this year.

The ACCC’s final determination considers that the two airlines are “likely to be at some competitive disadvantage to the Qantas-Jetstar/Emirates alliance”. It grants conditional authorisation until 31 October 2018.

Virgin Australia chief executive, John Borghetti said the decision would enable the two airlines “to continue to work together for the benefit of consumers, tourism and business in Australia”.

Authorisation will start on 1 January 2014.

“The ACCC considers that the alliance is likely to result in material public benefits by partnering Virgin Australia’s domestic Australian network and sales presence with Air New Zealand’s domestic New Zealand network and sales presence to contribute to the formation of a second integrated Australasian network,” ACCC Commissioner Dr Jill Walker said.

“The alliance will allow the two airlines to offer enhanced products and services, such as new frequencies and increased access to loyalty program benefits and lounges. This is likely to promote competition on trans-Tasman routes, particularly for business travellers”

“The ACCC considers that without the alliance, Virgin Australia’s trans-Tasman operations would be more limited than its key competitors. It also considers that Air New Zealand is likely to be at some competitive disadvantage to the Qantas-Jetstar/Emirates alliance due to its weaker sales presence and more limited access to the domestic market in Australia.”

Although the ACCC considers that the alliance is unlikely to reduce competition on most of the trans-Tasman routes, it is concerned that the alliance may affect competition on the routes between Christchurch-Melbourne and Christchurch-Brisbane; Wellington-Brisbane; Queenstown-Brisbane; Auckland-Gold Coast; and Dunedin-Brisbane.

To address these competition concerns, the ACCC is imposing conditions to require Virgin Australia and Air New Zealand to maintain aggregate base capacity across these routes. Rather than prescribe a minimum growth factor for these routes, the ACCC considers it appropriate to review the airlines’ capacity additions in light of actual demand growth over the next two years.  This review will commence on 1 September 2015.

The ACCC is also requiring the airlines to provide key performance data at the end of each scheduling season to assist it in assessing whether the alliance is having any adverse effect on competition going forward.

The ACCC considers it appropriate to grant authorisation for five years, taking into account the airlines’ additional submissions about the need for a five year term to allow for investment certainty and facilitate greater integration of the Alliance partners, thereby realising additional public benefits.

Authorisation provides immunity from court action for conduct that might otherwise raise concerns under the competition provisions of the Competition and Consumer Act 2010. Broadly, the ACCC may grant an authorisation when it is satisfied that the public benefit from the conduct outweighs any public detriment.

Borghetti said: “Since the launch of the Alliance in 2011, Virgin Australia and Air New Zealand have been able to offer consumers a better choice of flights, improved connections and increased capacity on the Tasman. We have also worked together to promote tourism throughout regional Australia and New Zealand.

“We welcome today’s decision by the ACCC as it will enable us to continue to work together for the benefit of consumers, tourism and business in Australia.”

The alliance has four key components, Borghetti added:

  • A broad free-sale code share arrangement covering all Tasman sectors and domestic Australian and New Zealand sectors as part of a connecting journey.
  • A revenue share agreement.
  • Reciprocal loyalty scheme benefits to members of Air New Zealand’s Airpoints loyalty programme and Virgin Australia’s Velocity Rewards programme.
  • Reciprocal lounge access to qualifying guests of either airline.

The re-authorisation of the alliance is still subject to approval from the New Zealand Minister of Transport.

Written by Peter Needham

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