ACCC TIGHTENS REIGNS ON VIRGIN/AIR NEW ZELAND ALLIANCE

Written on the 12 July 2013

ACCC TIGHTENS REIGNS ON VIRGIN/AIR NEW ZELAND ALLIANCE

THE ACCC has added more restrictions to a trading agreement between Virgin Australia (ASX:VAH) and Air New Zealand.

In a draft determination the ACCC flagged its concern that the strategic partnership could monopolise a number of routes between New Zealand and Australia.

To address this concern the ACCC have requested that the airlines maintain capacity on these routes, and provide key performance data so that it can assess if the alliance is effecting competition.

“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 like to result in a net public benefit,” says ACCC commissioner Dr Jill Walker.

According to an official ASX statement from Air New Zealand today (July 10) the air carrier:

“... considers that in the current market structure, capacity conditions are not necessary to maintain strong competition in the Trans-Tasman market and will work with the ACCC to understand its rationale for requiring such conditions.”

In addition, the ACCC has allowed for a three year renewal, as opposed to the five-year renewal requested.

The Virgin Airlines and Air New Zealand Alliance includes code share and revenue share arrangements, plus a reciprocal loyalty scheme and lounge access.

“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” says Dr Walker.

The ACCC is expected to make its final determination over the following weeks after public comment submissions on its draft determination.

The final determination will then be subject to approval from the New Zealand Ministry of Transport.


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