Green Light For Virgin Blue, Air NZ Alliance

The New Zealand government has approved an alliance between Air New Zealand and Australia’s Virgin Blue, removing the last regulatory hurdle to the carriers’ linkup.

The decision, issued by Transport Minister Steven Joyce, follows a similar approval by the Australian Competition and Consumer Commission (ACCC) on Dec. 16. The carriers are now free to code share on routes between the two nations, as well as collaborating on pricing, scheduling and route planning.

According to their application, the carriers intend to begin selling tickets on combined operations in about four months, with services beginning in six-to-seven months.

The ACCC initially announced it would reject the deal, but the airlines assuaged regulators’ concerns by providing new capacity commitments. The carriers promised to at least maintain their trans-Tasman capacity, and increase capacity on the half-dozen routes of most concern to the ACCC. New Zealand’s Ministry of Transport (MoT) says these commitments were important to gaining approval. The carriers must report their compliance with the capacity commitments twice a year.

Like its Australian counterpart, the MoT has put a shorter-than-normal duration on its authorization. The carriers must reapply after three years, and the MoT says this is the first time such a limit has been imposed under New Zelaand’s civil aviation regulations. The MoT says this “places a strong incentive on the two airlines to operate in a competitive manner.”

In its recommendation to Joyce, the MoT agrees with the airlines that the alliance will help them compete with Qantas and Jetstar. It will “enable more sustainable competition between the two major airline groups” in this market, the MoT says.

Consumers will benefit from improved service levels, connections, frequencies and frequent flyer programs, the MoT says. However, it notes that “the magnitude of these benefits is uncertain and in some cases we assess it as more modest than that put forward by the applicants.”

An important factor was the inclusion of domestic routes in both countries in the alliance. This will give Air New Zealand a presence in the Australian domestic market for the first time since Ansett Australia collapsed in 2001, and it will also renew Virgin Blue’s presence in the New Zealand domestic market after it pulled out earlier this year.

The MoT also says it considered what would happen if the alliance was rejected. It believes that the status quo would not continue, as the airlines have stated they will review a number of trans-Tasman routes if the alliance did not go ahead. This warning “has some credibility,” the MoT says. This is supported by the fact that Air New Zealand withdrew some services when its alliance with Qantas was rejected in 2006, and by the Virgin Blue group’s recent withdrawal from unprofitable routes.