The competition regulator has refused to budge over capacity conditions imposed on Virgin Australia and Air New Zealand’s Tasman alliance.
The Australian Competition and Consumer Commission (ACCC) today issued a final ruling approving the continuation of the partnership until 2018. It said the alliance was necessary to compete against the Qantas-Jetstar/Emirates alliance.
But the ACCC imposed conditions requiring the carriers to maintain aggregate capacity on six routes; Christchurch to Melbourne and Brisbane, Wellington, Queenstown and Dunedin to Brisbane and Auckland to the Gold Coast.
However, it did extend authorisation for five years, two more than outlined in a draft ruling in July.
While acknowledging that without the alliance both Virgin and Air NZ would struggle to compete against Qantas, Jetstar and Emirates, the ACCC warned that competition may be affected on some routes.
“To address these competition concerns, the ACCC is imposing conditions to maintain aggregate capacity across these routes,” the watchdog said.
The ACCC said it would review the airlines’ capacity growth against demand growth over the next two years. The review will start on September 1 2015.
The alliance partners must also provide data at the end of each scheduling season in order for the ACCC to assess whether the alliance is damaging competition.
The ACCC said it extended approval from three to five years after accepting the airlines’ submissions that a five-year term was necessary to “allow investment certainty and facilitate greater integration of the alliance partners”.
Overall, the regulator said the alliance would benefit competition by combining Virgin and Air NZ’s domestic network and sales presence to create a “second integrated Australasian network”.
“The alliance will allow the two airlines to offer enhanced products and services, such as new frequencies and increased access to loyalty program benefits and lounges,” ACCC commissioner Jill Walker said. “This is likely to promote competition on trans-Tasman routes, particularly for business travellers.”
Virgin Australia chief executive John Borghetti welcomed the ruling, saying the alliance has offered consumers more flights, improved connections and increased capacity.
“We have also worked together to promote tourism throughout regional Australia and New Zealand,” he said.
Approval is still being sought from the NZ ministry of transport.
