Australian regulator rejects Virgin Blue-Air NZ alliance

13:04, September 10, 2010      

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Australian competition regulator rejected Virgin Blue Holdings Ltd's proposed alliance with Air New Zealand Ltd on flights between Australia and New Zealand on Friday.

The draft ruling of the Australian Competition and Consumer Commission (ACCC) said the proposed tie-up was "likely to reduce competition in the market for trans-Tasman air passenger services".

The knockback came the day after U.S. regulators had rejected Virgin Blue's proposed partnership with Delta Air Lines on flights between the U.S. and Australia in a preliminary ruling.

ACCC chairman Graham Samuel said there were a number of trans- national routes where the alliance raised competition concerns.

"These routes account for around one quarter of passenger traffic in the trans-Tasman market," Samuel said in a statement.

"This means that more than one million passengers per year may be adversely affected by the removal of competition between Virgin Blue and Air New Zealand."

The ACCC said the alliance was likely to bring in some public benefits, such as cost savings and efficiencies.

"However, the ACCC has doubts about the magnitude of these benefits," it added.

The ACCC also acknowledged that the Air New Zealand-Virgin Blue partnership across the Tasman sea would give both airlines a broader and more integrated network, and lead them to compete more effectively against Qantas, the Australia's national airline and Jetstar, the Australian low-cost airline.

In December last year, the ACCC approved Virgin Blue's joint- venture partnership with Delta Air Lines on trans-Pacific routes, but the ACCC noted that alliance was different to what was being proposed across the Tasman.

"Unlike that case, this matter involves an alliance between the first and third major competitors in the trans-Tasman market and substantially less significant connectivity benefits for consumers, " the ACCC said.

Interested parties have to respond to the draft ruling by September 24.

On Thursday, the U.S. Department of Transportation (DOT) found Delta and Virgin Blue hadn't demonstrated the Delta alliance would produce sufficient benefits to consumers to warrant immunity from U.S. anti-trust laws.



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