The Australian competition regulator's plan to force Virgin Australia and Air New Zealand to guarantee capacity on certain trans-Tasman routes will have a "distorted effect" on the market for air travel, Rotorua airport says.
In a submission to the Australian Competition and Consumer Commission (ACCC), Rotorua International Airport said there was demand for additional flights to the airport during summer peak months, but the draft proposal to force Virgin and Air NZ to guarantee capacity on certain other routes would hamper the carriers' ability to add flights to the North Island tourist destination.
The ACCC this month issued a draft decision to reauthorise the Virgin-Air NZ alliance for three years, rather than the five requested, contingent on maintaining capacity on certain routes.
Air NZ said it did not think capacity restrictions were required under the current market structure and said it would work with the ACCC to understand the rationale for requiring those conditions along with the reauthorisation period of only three years.
In contrast, Qantas and Emirates this year received five-year approval for the trans-Tasman portion of their global alliance, although they have been prohibited from reducing the previous level of capacity on four overlapping routes.
Qantas and Emirates have been working to align fares, timetables, baggage allowances and code-share arrangements on their trans-Tasman routes and are expected to make a public announcement on the changes today at a dinner in Auckland to mark the alliance. Combined, the carriers operate almost 130 weekly flights between Australia and New Zealand.
Qantas and Emirates have already aligned their flights to Dubai and Europe from Australia in a move that led Qantas to reduce its fuel surcharge to match its partner.
The ACCC's draft decision on the Virgin-Air NZ alliance required those airlines to maintain at least an aggregate base level of capacity, subject to a growth factor, on the Christchurch-Brisbane, Christchurch-Melbourne, Dunedin-Brisbane, Dunedin-Sydney and Dunedin-Melbourne routes.
It also required the airlines to maintain at least a base level of capacity, subject to a growth factor on the Wellington to Brisbane, Queenstown to Brisbane and Auckland to Gold Coast routes.
Rotorua's airport said the conditions were reducing the ability of Virgin and Air NZ to quickly respond to demand, with the conditions benefiting other regions and sectors to the detriment of Rotorua.
"This is currently presenting a real issue for us where demand warrants an additional service over the upcoming summer peak months; however Air NZ cannot free up any additional capacity as it is being committed under the alliance to other sectors which do not have the same level of demand," the airport said.
There is currently no competition on the Sydney-Rotorua route.
Rotorua said the ACCC's capacity conditions restricted the likelihood of new airlines entering the Tasman market or existing competitors such as Jetstar increasing their capacity because those airlines would know Air NZ and Virgin are committed to a set amount of capacity irrespective of demand.
In a separate submission in response to the draft decision, Dunedin International Airport, which will benefit from the capacity conditions, told the ACCC it supported the determination.
Interested parties had until Wednesday to lodge submissions related to the draft decision. A Virgin spokeswoman the airline expected to make one "as soon as possible". ACCC expects to make a final determination in September.
- Jamie Freed and Stuff.