Claims Dunedin and Queenstown would benefit under a proposed alliance between Air New Zealand and Pacific Blue have been rejected by an Australian consumer watchdog.
Both airlines announced earlier this year they were seeking regulatory approval to code-share on transtasman flights, with Air New Zealand chief executive Rob Fyfe quick to allay fears it would lead to reduced Dunedin services.
Dunedin International Airport, the only airport which has sole Air New Zealand and Pacific Blue services, would "benefit from this alliance", he told the Otago Daily Times in May.
The proposal would result in increased competition, and cheaper prices from both Dunedin and Queenstown airports, Mr Fyfe said.
"We will have to look at fare reductions."
However the regulatory authority, the Australian Competition and Consumer Commission (ACCC), this month issued a draft decision which rejected the proposed alliance.
The alliance would result in "public detriment by reducing competition in the market for transtasman air passenger services".
The commission said the alliance, if approved, would result in fare increase on five transtasman routes including Brisbane-Dunedin and Sydney-Queenstown.
On the Brisbane-Dunedin route "the [commission] is of the view that it is likely the alliance partners will unilaterally raise fares on this sector".
And the same conclusion is reached for the Sydney-Queenstown route.
In their joint submission, Pacific Blue and Air New Zealand said the Dunedin/Brisbane sector "is a seasonal and small route, accounting for less than 0.5% of passengers carried on the Tasman".
"It is not capable of supporting substantial direct operating capacity. Jetstar has aircraft it could deploy if the opportunity arose."
On the Sydney-Queenstown route, the joint submission stated: "This is a highly price-sensitive route with almost 90% on this route in the 'holiday or visiting friends or relatives' segment".
"Qantas has 40% of direct operating capacity on the route and Jetstar is present at both airports and has new planes."
The New Zealand Airports Association also rejected claims the alliance would benefit travellers, and cited the positive effect of competition for the Dunedin market.
"The experience of Dunedin Airport has been that the transtasman market is responding well to this competition from Pacific Blue, and that patronage on the Dunedin-Brisbane service is up. That competition came after significant investment by Dunedin Airport in trying to bring competition back to the market," the submission said.
Dunedin International Airport chief executive John McCall said the airlines' submission was not a reflection of the airport's business and did not take into account Pacific Blue increasing its Brisbane services from three, to four a week from next month.
"Brisbane is not a seasonal market," Mr McCall maintained.
Air New Zealand issued a statement saying the airlines were reviewing the draft decision over the coming weeks and expected to respond to the Australian commission's concerns.
Following last month's announcement Pacific Blue was withdrawing from the New Zealand domestic market, Transport Minister Steven Joyce said the ministry was working through the "implications" of that announcement.
He confirmed Pacific Blue's domestic routes were covered in the application submitted to the Transport Ministry, and officials would brief him in regards to how the announcement would affect the alliance application.
That recommendation is expected to be available before November 6, six months after the application was received.
Briefing papers to the minister - obtained by the Otago Daily Times under the Official Information Act - advise that "there is a risk of litigation in this decision", based on the rejected 2006 code-share agreement proposed between Air New Zealand and Qantas.
To counter the risk of litigation between affected parties, a transparent process was recommended by the ministry, which would allow a month for the public to make their views known.
If the alliance was approved it would result in a consolidation of schedules and "in some cases only one of the airlines will operate on a route".
Virgin Airlines founder Richard Branson told the ABC radio this month the company could pull its Pacific Blue transtasman flights.
"We think if we can work together with Air New Zealand we can offer a proper competitor to Qantas."
