Would a Qantas-ANZ equity deal be anti-competitive

Dubai-based airline Emirates was a considerable threat to Air New Zealand and Qantas on the trans-Tasman flight route, Air NZ told the Australia Competition Tribunal in Sydney yesterday.
The tribunal started hearing submissions yesterday on Qantas and Air NZ’s appeal against an Australian Competition and Consumer Commission decision that their equity deal was anti-competitive. The New Zealand Commerce Commission made a similar decision.
Under the deal, Qantas would pay $550 million for a 22.5 percent share of Air NZ.
Both airlines had presented written opening statements to the tribunal and yesterday their counsels made opening verbal submissions.
Air NZ chief executive Ralph Norris is likely to give evidence before the tribunal this week.
Qantas and Air NZ both said the proposed partnership would be a natural response to the increased competition caused by the introduction of Pacific Blue and Emirates on the trans-Tasman route.
However, while Qantas spoke more about Virgin Blue’s trans-Tasman subsidiary Pacific Blue, Justin Gleeson, acting for Air NZ, made a stronger submission over the Emirates threat.
“The reason is that Emirates, apart from having access to large cash, has a business model which involves seeking to become a truly global reach airline, which flies to every major route in the world.”
He said it had a convenient hub in Dubai from which to base its plans, which was a major advantage over Qantas and Air NZ.
While opponents to the Qantas-Air NZ alliance had suggested Emirates would be a “transitory phenomenon” on the trans-Tasman route, “we submit that it is quite clear that their current business model goes far beyond that.”
Mr Gleeson said Air NZ did not have access to “ready capital” which would allow it to add “extra chunks” to its air network, but the alliance would allow it to access Qantas’ extensive network and for the Australian airline to exploit Air NZ’s.
Under the deal, Air NZ had offered to place 100 per cent of its business in the alliance, while Qantas could benefit from using Air NZ’s bilateral treaties which it currently does not have access to. In turn, there would be extra advantages for Australia’s tourism markets.
Air NZ would gain a 25 per cent share of Qantas’ network, while if the alliance was efficient and profitable, Qantas would gain 22.5 per cent through its equity interests in Air NZ.
Mr Gleeson said the experience of airline executives in the years since the alliance deal was signed was that the public and private benefits of the deal would be greater and the detriments lower.
Qantas counsel Tony Bannon told the three-man tribunal, chaired by Justice Goldberg, that the Australian experience with Virgin Blue would be a strong guide as to what was likely to occur across the Tasman.
Virgin had achieved 30 per cent of the Australian domestic market.
“We have Virgin in Australia as a very strong presence.”
Pacific Blue flights would provide “powerful competition” on the trans-Tasman route, he said.
He said the alliance would be a natural fit because of the geographic, cultural and tourism similarities between Australia and New Zealand.
The alliance would not result in higher passenger costs, because competitive pricing was the only way to counter the significant threat posed by Pacific Blue.
Mr Bannon also said that there had been no drop-off in service from Qantas after Ansett’s departure from the market a few years ago.
He said airline executives, aviation experts and economic experts would give evidence on how full service airlines (FSAs), such as Qantas and Air New Zealand, would deal with competition from lower cost carriers (LCCs).
“I don’t think you will find any evidence of FSAs taking their foot off the pedal.”
FSAs had to reduce their costs to get closer to the model of LCCs, he said.
“These are efficiencies that can only be achieved by this alliance.”
The hearings are expected to take between three and four weeks.