The ACCC has again reminded the big players on the trans Tasman routes that if they start or engage in a capacity war (more seats, lower fares) they can only stop it at its pleasure, not theirs.
It was the turn of Virgin Australia and Air New Zealand today to be told in effect that whatever they started would continue until or if the competition guardian decided they could stop.
The ACCC said it proposed to give only limited and conditional approval to an application by the two carriers, who control between them the larger share of the Australia-New Zealand market, to reauthorise their alliance.
Virgin Australia and Air New Zealand had sought unconditional reauthorisation for a period of five years.
The ACCC’s detailed statement announcing its provisional decision can be read here. Virgin Australia has already said it ‘welcomed’ the proposed reauthorisation and would make further submissions to the ACCC concerning the term of the proposed authorisation and its conditions.
The ACCC was similarly determined to prevent Qantas and Emirates reducing their capacity or services across the Tasman as part of their broader application for the authorisation of their business partnership, and after a prolonged hiatus between those carriers and the competition authority it eventually approved their adhering to pre-existing service levels between Australia and New Zealand for five years.
Which was clearly not what Qantas and Emirates had in mind.
This is the sticking point in the ACCC statement of provisional approval.
The ACCC considers that without the alliance, Virgin Australia’s trans-Tasman operations would be more limited than its key competitors and Air New Zealand is likely to be at some competitive disadvantage to the Qantas-Jetstar/Emirates alliance due to its weaker sales presence and more limited access to the domestic market in Australia.
In light of this, the ACCC considers that the alliance is unlikely to reduce competition on most of the trans-Tasman routes including the major routes between Sydney/Melbourne and Auckland, Sydney/Melbourne and Wellington and Sydney-Christchurch.
However, the ACCC is concerned that the alliance may affect competition on the routes between Christchurch-Melbourne and Christchurch-Brisbane; Wellington-Brisbane; Queenstown-Brisbane; Auckland-Gold Coast; and Dunedin-Sydney, Dunedin-Melbourne and Dunedin-Brisbane.
In order to address this concern, the ACCC proposes to impose conditions which require Virgin Australia and Air New Zealand to maintain capacity on these routes. The ACCC also proposes to impose conditions requiring the airlines to provide key performance data to assist the ACCC in assessing whether the alliance is having any adverse effect on competition more generally.
“The ACCC notes that the weighing up of likely public benefit and detriment was finely balanced and it was only with the proposed conditions that the ACCC reached the preliminary view that the alliance is likely to result in a net public benefit.”
What might we make of this? The ACCC is obliged to maximise the benefits of competition for consumers, and there would be no disputing the benefits for consumers of Qantas, Emirates, Virgin Australia and Air New Zealand hitting each other with an overcapacity of cheap seats between both countries.
On the other hand the airlines engage in such conduct to variously survive or prosper by raking in enough money to pay their bills or drive the competitor to the wall, or at the very least, improve if not defend their market share.
At various times in recent years all the trans Tasman players have said the current levels of capacity and frequency on the routes are unsustainable, while adding to that unsustainability with more services or bigger jets.
For the ACCC this is clearly a balancing act. A blood bath always ends in market failure if the bleeding becomes so unsustainable that the weaker competitor is forced from the field. If on the other hand the players in each team can make an orderly reduction in their capacity they can stay on the field.
But the ACCC isn’t about ‘orderly competition’ anymore than it is a proponent of cartel like behavior. It is there to keep the benefits of competition flowing, even if the airlines compare that flow to coming from bleeding wounds.