Save Air NZ: The Appeal Of Flogging A Dead Horse

So Air New Zealand and Qantas are to appeal. Apparently the Commerce Commission must be out of its mind not to approve a proposal whereby competition between the two airlines would cease. In fact, the airlines tell us, New Zealanders would be better off with the alliance because competition between the Qantas and Air New Zealand is not sustainable. Especially not with the imminent entry of an efficient and aggressive Pacific Blue. Consumers, say the airlines, must take the pain of monopoly pricing because the alternative for Air New Zealand is oblivion.

Of course, the infamous “war of attrition” - a bizarre scenario involving both Qantas and Air New Zealand throwing good money after bad - has been rejected by the Commission. It noted that Air New Zealand is surviving very well thank you very much – the Express initiative had grown the domestic market and looks set to do the same on the Tasman, Freedom is catering to a certain niche, the engineering business is prospering. And financial performance is improving. The Commission’s optimism is borne out by Air New Zealand’s head of airlines businesses, Rob Fyfe, who was recently reported in the Dominion Post as saying: “We are continuing to look at where we can create further value and further stimulate travel.” In the same report, Mr Fyfe seems sceptical about the ability of Pacific Blue to deal the blow Ralph Norris fears: "What we found is that the budget airlines are starting to show a few cracks." Hardly the attitude of an airline on death row. On the contrary, until now Air New Zealand has had no problem fighting off new entrants without any assistance from Qantas. Look at the unfortunate demise of Kiwi Air. If the recent rough-house treatment meted out to Origin on the new Hamilton to Christchurch route is an indication of Air New Zealand’s attitude in the market now, what can we expect from it when it has the might of Qantas behind it as well? It is obviously not something the Commerce Commission was prepared to contemplate.

Successful appeals against Commerce Commission decisions are rare, especially if the grounds of appeal are the “merits” (as opposed to matters of legal process). The airlines would need to turn up a fundamental error giving rise to a wild swing in the analysis. That is highly unlikely. In this case, the Commission has taken particular care. It has spent the best part of a year grappling with the issues and its determination illustrates a sophisticated and comprehensive understanding of the issues. The errors the airlines claim are not apparent to anyone else who has read the decision. The decision is thorough, well reasoned and well expressed. It was not a “close call”. The conclusion is that the benefits claimed go nowhere near compensating for the damage caused by having our only two major providers of airline services collaborate on prices, schedules and capacity on all routes and to have those arrangements underpinned and entrenched by equity investment and cross-directorships. In short, the alliance has 4 legs and barks and has, accordingly, been pronounced a dog.

And not even the spin of the very best legal and economic advocacy that millions of dollars can buy could persuade the Commission otherwise. Mind you, the inventiveness of those experts has to be admired. For example, they argued that we would all be better off under the alliance because overseas holidays would become prohibitively expensive and the economy would benefit from the money that the stranded New Zealand public were forced to spend locally. Full marks for trying but, for the record, the Commission didn’t buy that one.

So why appeal? Jim Farmer QC apparently believes the Commission was wrong not to embrace Qantas as Air New Zealand’s new guardian angel – yes, this is the same Jim Farmer QC who as acting chair of Air New Zealand blamed Qantas for sinking Ansett and putting Air New Zealand in the financial predicament in which he found it. The appeal is disingenuous. And New Zealand consumers are left to pick up the tab. As a matter of commercial commonsense, the continuing spectre of the unauthorised alliance must reduce the intensity of competition between Air New Zealand and Qantas. And while the dead horse is being flogged in front of the High Court, the winners are the airlines. From their perspective, the longer it goes on the better. Hell, with any luck, the Court will rule a re-hearing of the matter by the Commission and we’ll be none the wiser in 2006. One wonders as to what is the real end-game here.

ENDS

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