Virgin Blue, Air New Zealand Tie-Up Blocked by Regulator

By Robert Fenner

Virgin Blue Holdings Ltd. and Air New Zealand Ltd. had their proposed alliance for flights across the Tasman Sea blocked by Australia’s antitrust regulator on concerns it may reduce competition.

Both carriers can provide more information by Sept. 24 before a final verdict, the Australian Competition and Consumer Commission said in a draft ruling today. The airlines had announced the tie up for flights between Australia and New Zealand in May.

The companies wanted to collaborate on routes, product planning, code sharing and frequent flyer programs to enable them to compete with Qantas Airways Ltd. and its Jetstar budget unit. The ruling is Brisbane-based Virgin Blue’s second rejected collaboration with another airline in as many days after the U.S. Transportation Department yesterday blocked a tie-up across the Pacific Ocean with Delta Air Lines Inc.

“The parties will have to work hard to change the commission’s mind,” the Centre for Asia Pacific Aviation, a Sydney-based industry consultant, said in an e-mailed statement. “Two key planks of the carrier’s cooperation strategy, with Delta and Air New Zealand, appear to be under serious threat.”

Virgin Blue shares fell 7 percent, the most in more than three months, to 40 Australian cents at the 4:10 p.m. close of trading in Sydney, extending this year’s decline to 32 percent. Qantas, Australia’s largest airline, gained 2.4 percent to A$2.61, the highest level in three weeks. Air New Zealand rose 1 cent to NZ$1.27 at the close of Wellington trading.

Significant Competitor

“The ACCC believes that Virgin Blue is a significant competitor to Air New Zealand and there are a number of trans- Tasman routes where the alliance raises competition concerns,” the regulator said today. “These routes account for around one quarter of passenger traffic in the trans-Tasman market.”

Air New Zealand is considering the draft ruling and will respond “over the coming weeks,” the Auckland-based carrier said in a separate statement. Virgin Blue will provide further information to the regulator, the company said in its statement.

An approval for the cooperation would have helped Virgin Blue and Air New Zealand compete with Qantas and Emirates Airlines on routes flown by more than 5 million passengers annually. Virgin Blue and Air N.Z. would have a 56 percent share of trans-Tasman traffic, compared with about 35 percent for Qantas and Jetstar combined, Virgin Blue’s then Chief Executive Officer Brett Godfrey said in May.

In 2003, Australia’s competition regulator blocked a Qantas proposal to buy a stake in Air New Zealand saying it would drive up fares.

Virgin Blue last month announced plans to scrap New Zealand domestic services as Chief Executive Officer John Borghetti overhauls operations to focus on more profitable routes.

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