Commerce Act: Qantas & Air NZ draft determinations

Media Release

Issued 10 April 2002-03 / 137

Commerce Act: Qantas & Air NZ draft determinations

The Commerce Commission considers that an alliance between Air New Zealand and Qantas Airways Limited would not result in a net public benefit to New Zealanders, and on the basis of the information available, it would be likely to decline applications by both airlines for authorisation under the Commerce Act. The Commission released its draft determinations today.

“The Commission’s role is to determine whether the proposed alliance would result in a substantial lessening of competition in any of the markets affected and, if so, whether the detriments flowing from this lessening of competition are outweighed by the public benefits claimed to flow from the alliance,” said Commission Chair, John Belgrave.

“The Commission’s preliminary view is that the proposal would likely result in a substantial lessening of competition in a number of markets.”

Those markets are:
- the following passenger air service markets:
- the New Zealand main trunk and provincial markets,
- the Tasman market,
- the New Zealand / Pacific market,
- the New Zealand / Asia market,
- and the New Zealand / USA market; and
- the following freight markets:
- the Tasman belly hold air freight services market,
- the international air freight services market, and
- the domestic air freight services market; and
- the national wholesale travel distribution services market.

“The view of the applicants is that detriments would be limited largely to a loss of allocative efficiency which includes the harm done to consumers through higher fares. The applicants have calculated this to be about $10.3million at year three. Prospective losses of productive and dynamic efficiencies are almost completely discounted.

“The Commission’s preliminary view is that the detriment to the public of New Zealand would be likely to fall within the range of $202million to $432million per annum,” said Mr Belgrave.

The applicants estimate that the benefits arising from the proposed alliance would be $236.3million at year three.

“The Commission’s estimates suggest that the public benefits attributable to the proposed alliance are likely to be in the range of $30.2million to $46.3million per annum.”

“In the Commission’s preliminary view, the overall detriment expected to result from the proposed alliance would clearly outweigh the expected benefits. On a provisional basis, the detriments are estimated to fall in the range of $202million to $432million, and the benefits in the range of $30.2million to $46.3million.”

More detail on the Commission’s conclusions is contained in the attached Executive Summary. A complete copy of the Commission’s draft determinations is available on the Commission’s website.

The Commission invites submissions from interested parties on its preliminary conclusions. The deadline for submissions is Friday, 9 May 2003. The Commission proposes to hold a four-day conference in Wellington over the period 20-23 May 2003. The Conference is to enable the Commission to ask questions of interested parties in relation to their submissions on the draft determinations. The Commission intends to release its final determinations on the applications by the end of the June 2003.

Commission media releases can be viewed on its web site www.comcom.govt.nz

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