Air NZ, Virgin Blue alliance could cut airfares

Average airfares across the Tasman could fall between 10 percent and 20 percent as a result of a proposed alliance between Air New Zealand Ltd and Virgin Blue Airlines Group, according to Air NZ chief executive Rob Fyfe.

The airlines said today that they would seek approval for an alliance that involves collaboration on future route and product planning, code sharing and frequent flyer programme benefits. They are not proposing to take shareholdings in each other.

The alliance, the possibility of which was signalled last week, would deliver cheaper airfares, increased frequency, better connections, loyalty scheme reciprocity and expanded lounge access, the airlines said.

"I don't think the lead-in fares will come down so much because they are so low already," Mr Fyfe said on Radio New Zealand. "But I think the average fares will reduce," he said.

Last week the Centre for Asia Pacific Aviation said the alliance would concern Australian airline giant Qantas and its budget airline Jetstar.

The centre noted previous attempts by Qantas and Air New Zealand to work together did not work out, but that former Qantas executive John Borghetti was an architect of them, and he was moving to Virgin Blue.

Mr Fyfe said the chances of approval for this alliance were much stronger than for the previous attempt at an alliance with Qantas because the combined market share was smaller and the airlines were not proposing to reduce services. Five years ago the competition regulator did not believe airlines like Emirates and Pacific Blue were committed to the market.

"Five years on that's clearly proved to be an incorrect conclusion from the competition authorities, so I think there is a higher probability now that they see sustained competition in the market and therefore than this could be positive for consumers," Mr Fyfe said.

The centre said in its report last week that competition implications were complex. The two airlines accounted for all of the trans-Tasman seats available from Dunedin. They also had a large collective share of the market between Cairns and New Zealand.

But trans-Tasman flights to Auckland were well balanced between airlines and the market was highly competitive.

"The Tasman should not therefore be a major stumbling block from the regulatory perspective," the centre said.

The two airlines will file applications with the Australian Competition and Consumer Commission and the New Zealand Ministry of Transport. The regulators are expected to take around six months to review the applications.

Virgin Blue co-founder and chief executive Brett Godfrey said the alliance would stimulate a new wave of competition in Australasian aviation. Mr Borghetti thoroughly supported this strategy, he said.

Mr Fyfe said if the alliance was approved it would be one of several measures to improve the airline's competitive position on the trans-Tasman in the face of the Qantas group's two-airline move for regional dominance. 

"Simple moves like integrating schedules, allowing customers to book multi-sector journeys on one code, providing reciprocal loyalty scheme benefits and reciprocal lounge access for qualifying customers will be a compelling proposition for leisure and business travellers on both sides of the Tasman."

The centre said that another challenge was that Air New Zealand was still firmly a government-owned airline. That made strategic change "a whole lot more complicated", the centre said.

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