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Regulators axe Qantas-Air NZ link
By Geoff Hiscock, CNN Asia Business Editor
SYDNEY, Australia (CNN) -- The proposed alliance between Qantas Airways and Air New Zealand is in doubt after competition regulators in both countries rejected it Thursday. New Zealand's Commerce Commission and the Australian Competition and Consumer Commission (ACCC) released draft determinations finding the alliance would substantially cut competition and would offer little public benefit. Under a deal struck last November, Qantas planned to take a 22.5 percent stake in Air New Zealand and invest NZ$550 million ($277 million) in a wide-ranging strategic alliance that involved co-ordinating all of Air New Zealand's domestic and international flights with Qantas flights to, from and within New Zealand. But ACCC chairman Professor Allan Fels said Thursday the proposed alliance would be "highly anti-competitive and offer little benefit". Qantas, Air New Zealand and interested parties have until May 9 to lodge submissions ahead of a final decision, expected by late June. But Fels said the potential for the two airlines to make undertakings that would allow the deal to proceed was "extremely limited". The negative draft finding by the two regulators was widely expected. But Qantas chief executive Geoff Dixon said the airline would continue to pursue a relationship with Air New Zealand. "It is remarkable that both authorities appear to have completely ignored the ongoing crisis in the global aviation industry," Dixon said in a statement Thursday afternoon. He said their views of what was in the national interest were "extraordinary". Industry analyst the Sydney-based Center for Asia Pacific Aviation said that while the regulators had left the door "slightly ajar", it now believed an alliance was unlikely. It said it would be an entirely unsatisfactory outcome if the proposal were disapproved and nothing else was done. It said the Australian government should encourage another carrier such as Singapore Airlines to enter the market, creating the long-term circumstances where Qantas and Air New Zealand could be allowed to combine. New Zealand's Commerce Commission said its preliminary view was that the detriment from the alliance would "clearly outweigh" any benefits. It quantified the financial detriments as ranging from NZ$202 million to NZ$432 million, against benefits of between NZ$30.2 million to $46.3 million. Fels said the proposed alliance would give Qantas and Air New Zealand control of more than 90 percent of the trans-Tasman route, which he said was Australia's largest passenger market accounting for more than 16 percent of all travel to and from Australia. He said passengers would be denied choice and increased air fares would be inevitable. "Even if Virgin Blue (the main competitor to Qantas in Australia) enters, the alliance would still dominate the market," he said. He said the ACCC also considered that Qantas and Air New Zealand had under-estimated Air New Zealand's future ability to compete if the alliance did not proceed. The New Zealand government had to rescue Air New Zealand from difficulties after the collapse of its Australian subsidiary Ansett Airways in September 2001. Under a NZ$885 million ($366 million) recapitalization scheme, the government now owns 82 percent of Air New Zealand. Rejection of the proposed alliance comes at a difficult time for the two carriers, which have already been hit hard by declining passenger numbers as a result of the Iraq conflict and the SARS virus in Asia. Qantas, which is one of the region's most profitable airlines, announced Wednesday it was cutting 1,400 jobs between now and June 30 because of the passenger downturn. It had earlier announced a 20 percent cut in international flights between April and mid-July. (Full story) Air New Zealand has also cut services, including its route to North America. Shares in Qantas are 0.3 percent higher at A$3.08 just before the close Thursday. Air New Zealand finished down 6.25 percent to NZ$0.45.
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