Air NZ and Virgin Blue are increasing attempts to convince regulators and business groups that their proposed transtasman alliance should be given a green light.Speaking to a business lunch in Wellington last Thursday, Air NZ chief executive Rob Fyfe gave
Air NZ and Virgin Blue are increasing attempts to convince regulators and business groups that their proposed transtasman alliance should be given a green light.
Speaking to a business lunch in Wellington last Thursday, Air NZ chief executive Rob Fyfe gave a frank – and as one guest put it, rather bleak – view of current transtasman operations.
Air NZ has lost $100 million a year flying the Tasman in the past two years, he said – and has made a profit only once on the route in the last 10 years.
This loss rate, which Mr Fyfe described as the company’s worst, is driven by high competition leading to unusually low fares – “great for consumers but unsustainable for airlines in the long-run.”
To compensate, Air NZ has cut route capacity 15% over the past two years.
In April, as part of a bid to arrest this decline, Air NZ proposed an alliance with competitor Virgin Blue, to allow the two companies to feed domestic passengers into each other’s transtasman flights
Mr Fyfe described the alliance as a vital complement in the company’s A320 fleet reconfiguration.
But the Australian Competition and Consumer Commission knocked back the proposed alliance early this month, issuing a draft determination which refused permission for the alliance.
The ACCC’s stated reason was that the alliance would reduce competition and increase fare prices, to the detriment of consumers.
The Wellington Employers’ Chamber of Commerce and Wellington Airport opposed the alliance on similar grounds.
Air NZ and Virgin Blue are in talks with the ACCC in a bid to reverse the decision and, at last week’s lunch function, Mr Fyfe did his best to assuage concerns held by WECC members.
“Frankly, the alternative is not a continuation of the status quo but further reductions in capacity and potential route or market exits and that’s not the outcome we want.”
He argued that larger carriers would not maintain fares at current prices if smaller carriers were forced off the route but would move to cut capacity and increase fares – as Singapore Airlines has done on the NZ-Singapore route.
“Since we left capacity is down 30% and fares are up 16-20%,” Mr Fyfe said.
Virgin Blue has previously said that it would consider withdrawing from the transtasman route if the proposed alliance did not proceed.
Submissions on the ACCC draft determination close on September 24.
Sign up to get the latest stories and insights delivered to your inbox – free, every day.
