Tasman alliance is scrapped

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LONDON, England (CNN) -- The Australian flag-carrier has dropped its plan to merge its flight schedules and ticket prices with Air New Zealand following a warning from competition watchdogs that it would block the deal.

The two airlines carry 80 percent of passengers on the lucrative routes between the two countries. The Australian Competition and Consumer Commission (ACCC) said in a draft decision earlier this month that such any agreement to combine flight activity would kill competitiveness across the Tasman Sea.

Qantas and Air New Zealand unveiled the Tasman Networks Agreement in April, saying it would allow them to work together on network, schedule, pricing and marketing initiatives for their operations between the two countries.

However, the ACCC had said the deal would "fundamentally change the competitive process" since the two airlines already dominate these routes.

The announcement is good news for Qantas and Air New Zealand's rivals Virgin Blue and Emirates, who already face hurdles to further expansion on the route.

Talking before the announcement from the ACCC, Air New Zealand's CEO Rob Fyfe explained the reasons behind the proposed alliance.

"The cross-Tasman market is currently beset with too much capacity, and you don't make profit is where there is too much capacity. We're flying the equivalent of 11 A320s, across the Tasman Sea twice a day with a very small population basis on either side. We wanted to come to an alliance with Qantas that allowed us to reduce capacity," he told CNN.

"We don't see an alliance as anti-competitive. Our contention is that with ten airlines flying across the Tasman Sea, there is plenty of competition. Find me another market where you have got populations the size of Australia and New Zealand where you have ten airlines fighting it out amongst each other. It just doesn't exist. In fact there is only something like three percent of routes in the world that have more than five airlines flying them."

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