Air NZ only objector to Qantas and American Airlines expanding trans-Pacific alliance

Air New Zealand [NZX: AIR] is the sole voice protesting against an application by Qantas Airways and American Airlines for a co-ordinated increase in flights on the trans-Pacific route, planned for the start of the peak travel season in December.

Qantas and American Airlines sought re-authorisation from the Australian Competition and Consumer Commission last month for a 10-year expanded joint business agreement (JBA), allowing them to coordinate operations on the trans-Pacific route and boost capacity between Australia and the US by 9%.

The Australian airline has upped the competitive ante on New Zealand's national carrier by forging a closer alliance with American Airlines, adding thousands of extra seats to its transtasman services in early spring, and plans to extend its budget offshoot Jetstar's services in New Zealand to four regional destinations later this year.

The ACCC previously authorised a similar five-year arrangement between Qantas and American Airlines in September 2011.

The interim authorisation for an extended JBA is being sought now because of American Airlines' plan to fly between Los Angeles and Sydney from December. That's the peak time for tourists on the trans-Pacific route and, when the airline has relevant aircraft becoming available, it doesn't want to sit idle.

An extended alliance would let Qantas resume services on the Sydney-San Francisco route and the partners have also indicated they want to break Air New Zealand's lucrative monopoly on flights between Auckland and the mainland US by flying Auckland-to-Los Angeles as early as next year. Air New Zealand currently attracts Australian passengers on to its trans-Pacific flights via a stop in Auckland.

In a submission to the competition regulator, Air New Zealand said it was inappropriate to grant interim authorisation without a full and considered analysis by the ACCC. Qantas and American Airlines already had authorisation to coordinate on designated routes under the original JBA, which is valid to June 2016, it said.

"If either party wants to start a Sydney-San Francisco service they can do so alone or with the support of the other through codeshare, block space, wet lease, or other arrangements," Air New Zealand said.

While any delay to full cooperation between the parties could result in a "less than optimal launch of these services from the parties' perspective," this delay has only been caused by the parties themselves not allowing sufficient time for the authorisation process, Air New Zealand submitted.

Given changes to the operating environment since the 2011 authorisation and the successful reorganisation of American Airlines since then, the ACCC should carefully consider whether American Airlines would enter any of the joint venture routes in the absence of the alliance, it said.

In response to third party submissions, Qantas and American Airlines said the interim authorisation would allow them to operate under the existing JBA with the new trans-Pacific routes added in, until final antitrust immunity is received.

Comments on the proposed additional capacity have been "overwhelmingly positive," it said, with only Air New Zealand raising any objection.

"Air New Zealand's stated concerns must be viewed in the context of the strategic advantage it would enjoy from delaying or diluting the success of the introduction of the applicants' new joint services," they said.

It wouldn't be commercially feasible to launch the new services separately from the existing coordination as Air New Zealand suggested given they manage trans-Pacific routes as a whole rather than on a route-by-route basis, Qantas and American Airlines said.

"Pricing, sales, marketing and revenue management are inter-related" and it would be commercially impractical to carve out a single route such as Sydney-to-San Francisco from its other flights, even temporarily.

They claim Air New Zealand would be a major beneficiary of any delay or dilution of the success of the new services, which won't cause competitive harm, particularly given the intensity of competition on the trans-Pacific routes.

Other submitters, including various Australian airports and Tourism Australia, welcomed the extra capacity the flights would bring between the US and Australia, saying it was critical to achieving Australia's tourism objectives.

Qantas and American Airlines have also applied for interim authorisation in New Zealand and the US.

New Zealand's Ministry of Transport said applications are assessed for their potential impact on the New Zealand market and material relating to the application will shortly be posted on its website.

The ACCC is due to make a draft determination next month and a final one in October/November.

Air New Zealand shares rose 0.4% to $2.56, and have gained 3.2% this year.

(BusinessDesk)