The Australian Competition and Consumer Commission has denied authorisation to Air New Zealand and Air Canada to give effect to a proposed Cooperation Agreement.
Under the agreement, the airlines would share the revenue from Air Canada's direct Sydney Vancouver route and Air New Zealand's direct Auckland-Vancouver route, and would jointly promote the flights.
"The ACCC is concerned that the agreement would reduce competition between Air New Zealand's indirect flights and Air Canada's Australia-Canada direct flights, since Air New Zealand will receive revenue from the direct flights," ACCC Chairman, Mr Graeme Samuel, said. "The ACCC can authorise such an agreement where it meets a public benefit test but the ACCC considers that the test has not been met here."
In reaching this decision, the ACCC took into account the Australian Competition Tribunal views on the application of the public benefit test.* The Tribunal noted that in granting authorisation for conduct which is presumed to be anti-competitive under the Trade Practices Act 1974 (as was the case here), something more than a negligible benefit is required before authorisation can be granted.
"The ACCC considers it is important to ensure effective competition in aviation markets to continue delivering choice and lower fares to consumers."
The ACCC accepts that the direct flights deliver some benefits, mainly through increased choice and convenience for passengers. However, the ACCC is not convinced that an anti-competitive agreement is required to operate the flights as they have been running since late 2007. The ACCC is also not convinced about the extent to which revenue-sharing and joint marketing would actually address the main risk to the direct flights, namely a fall in overall demand.
"On balance, the ACCC considers that the public benefits of the Cooperation Agreement
are not likely to outweigh the public detriments."
The ACCC's determination will be available from the ACCC website, www.accc.gov.au.
Authorisation provides protection from court action for conduct or arrangements that might otherwise raise concerns under the competition provisions of the Act. Authorisation is granted where the ACCC is satisfied that the benefit to the public from the conduct outweighs any public detriment. A party to whom authorisation had been granted may also apply to the ACCC for a minor variation of that authorisation.
*See Re: Application by Michael Jools, President of the NSW Taxi Drivers Association [2006] ACompT 5.