The Australian Competition and Consumer Commission has issued a draft decision proposing to grant conditional authorisation for three years for Virgin Australia and Air New Zealand Limited to continue their trans-Tasman alliance.
"The ACCC considers that the alliance is likely to result in material public benefits by allowing the airlines to link 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.
"Combining the networks of the two airlines allows them to offer enhanced products and services, such as new frequencies and increased access to loyalty program benefits and lounges. This in turn is likely to promote competition on trans-Tasman routes."
The ACCC said that without the alliance, Virgin Australia's trans-Tasman operations would be more limited than its key competitors and 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.
In light of this, the ACCC considered that the alliance was unlikely to reduce competition on most of the trans-Tasman routes including the major routes between Sydney/Melbourne and Auckland, Sydney/Melbourne and Wellington and Sydney-Christchurch.
However, the ACCC expressed concern that the alliance may affect competition on the routes between Christchurch-Melbourne and Christchurch-Brisbane; Wellington-Brisbane; Queenstown-Brisbane; Auckland-Gold Coast; and Dunedin-Sydney, Dunedin-Melbourne and Dunedin-Brisbane.
In order to address this concern, the ACCC has imposed conditions that require Virgin Australia and Air New Zealand to maintain capacity on these routes. The ACCC also imposed conditions requiring the airlines to provide key performance data to assist the ACCC in assessing whether the alliance is having any adverse effect on competition more generally.
"The ACCC notes that the weighing up of likely public benefit and detriment was finely balanced and it was only with the proposed conditions that the ACCC reached the preliminary view that the alliance is likely to result in a net public benefit," Dr Walker said.
"Given the dynamic nature of the aviation industry, the likely public detriment and the role of the condition in the ACCC's decision, the ACCC considers it appropriate to review this authorisation earlier than the five years requested by Virgin Australia and Air New Zealand. In the circumstances, the ACCC proposes to grant authorisation for three years."
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.
The ACCC will now invite further submissions from the applicants and interested parties in relation to the draft determination prior to making a final decision on whether to authorise the conduct. The applicants or interested parties may also request that a conference be held to make oral submissions on the draft determination.
