Airlines seek relief from regulator

MATT O'SULLIVAN
Last updated 05:00 01/04/2013

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Virgin Australia and alliance partner Air New Zealand want the competition regulator to drop conditions on their tie-up requiring them to keep a certain number of flights on trans-Tasman routes.

The airlines are making their pitch to regulators for a five-year extension to their trans-Tasman alliance, which has been in place since January 2011 but expires at the end of this year.

The airlines are required to maintain a base level of flying on the Tasman route and increase seasonal flights on certain routes such as Melbourne and Sydney to New Zealand's capital, Wellington.

In their application to the Australian Competition and Consumer Commission, the airlines said the conditions should be dropped because, over the past 18 months, they had lowered fares and boosted capacity, which had prompted responses from Qantas, Jetstar and Emirates.

Virgin and Air NZ have also argued that the conditions have the "potential to create significant distortions and inefficiencies" on trans-Tasman routes.

They cite their inability to change flights from Australia to Christchurch in response to a big drop in demand following the earthquake in February 2011.

But the airlines might find it difficult to persuade the ACCC to drop the conditions. In approving the Qantas-Emirates alliance this week, the regulator required them to keep capacity on four overlapping trans-Tasman routes at existing levels, because it was concerned Qantas and Emirates could limit growth in flights to raise fares.

The latest pitch comes as investors doubt whether Virgin will convince the regulator to approve its bid for a controlling stake in Tiger Australia.

Commonwealth Bank analyst Matt Crowe said there was a significant risk the regulator would block the bid because Virgin boss John Borghetti appeared unwilling to agree to boosting Tiger's fleet.

"The stalemate increases the risk that the ACCC will not approve the proposed deal," he said.

"The overwhelming majority of mergers obtain regulatory approval . . . [but] we believe there is a significant risk this one may be blocked in the first instance."

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- The Dominion Post

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