Air New Zealand, Virgin Blue merger denied

Air New Zealand and Virgin Blue have been denied permission to merge their trans-Tasman services by the Australian competition watchdog.

The Australian Competition and Consumer Commission has issued a draft determination proposing to deny authorisation for the planned alliance on all flights between Australia and New Zealand.

Under the alliance, the airlines would have coordinated fares, revenue management, schedules, capacity and routes flown.

Virgin Blue flies as Pacific Blue on the Tasman. Pacific Blue has already announced it will pull out of the domestic market next month.

Air New Zealand and Virgin Blue argued that the alliance was necessary to enable them to compete more effectively against the Qantas-Jetstar group.

ACCC chairman Graeme Samuel said: "The ACCC considers that the alliance is likely to reduce competition in the market for trans-Tasman air passenger services,".

While the alliance would provide the two airlines with a broader and more integrated network, the commission was not convinced that this necessarily created a more competitive trans-Tasman market than under a scenario where Virgin Blue and Air New Zealand continued to operate independently.

"The ACCC believes that Virgin Blue is a significant competitor to Air New Zealand and there are a number of trans-Tasman routes where the alliance raises competition concerns," Mr Samuel said.

"These routes account for around one quarter of passenger traffic in the trans-Tasman market.``

More than a million passengers a year could be adversely affected if competition between the two airlines was removed, Mr Samuel said.

The ACCC accepts that the alliance is likely to result in some of the public benefits such as cost savings and efficiencies. However, the commission has doubts about the magnitude of these benefits.

Air New Zealand and Virgin Blue will be allowed to respond to the decision and provide more information to substantiate the public benefit claims in support their application before a final determination by the ACCC.

In New Zealand the application is being considered by the Ministry of Transport.

- © Fairfax NZ News