The Australian Competition and Consumer Commission has issued 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.
"The ACCC considers that the alliance is likely to reduce competition in the market for trans-Tasman air passenger services," ACCC chairman Graeme Samuel said.
"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."
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 applicants argue that the alliance will enable them to compete more effectively against the Qantas-Jetstar group. The ACCC acknowledges that the Alliance would provide the applicants with a broader and more integrated network. However, the ACCC is not convinced that this necessarily creates a dynamic in the trans-Tasman market that is fundamentally more competitive than a scenario where Virgin Blue and Air New Zealand continue to operate independently and pursue their publicly stated aims to develop their business models.
Last year, the ACCC granted authorisation for a joint venture between Virgin Blue and Delta Air Lines involving similar coordination and agreement on a range of issues. Unlike that case, this matter involves an alliance between the first and third major competitors in the trans-Tasman market and substantially less significant connectivity benefits for consumers.
The ACCC invites the applicants to provide further information to substantiate the public benefits claimed and to support the claim that the Alliance is more likely to promote than lessen competition in the trans-Tasman market.
Authorisation provides immunity from court action for conduct that might otherwise raise concerns under the competition provisions of the Trade Practices Act 1974. Broadly, the ACCC may grant an authorisation when it is satisfied that the public benefit from the conduct outweighs any public detriment.
The ACCC's draft determination will be available from the ACCC website, www.accc.gov.au. The ACCC is seeking submissions from interested parties by 24 September.