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ACCC gives Virgin and Air New Zealand green light

Virgin Australia (ASX:VAH) and Air New Zealand (ASX:AIZ) have been given the go-ahead to maintain their trans-Tasman alliance for another five years.

The Australian Competition and Consumer Commission (ACCC) says authorisation is to commence on 1 January 2014, when the existing authorisation expires and run until October 2018.

“The ACCC considers that the alliance is likely to result in material public benefits by partnering Virgin Australia’s domestic Australian network and sales presence with Air New Zealand’s domestic network and sales presence to contribute to the formation of a second integrated Australasian network,” ACCC Commissioner Dr Jill Walker said.

The alliance will allow the two airlines to offer enhanced products and services, such as increased flight frequencies and promote competition on trans-Tasman routes, particularly for business travellers, according to the ACCC.

But the ACCC has imposed some conditions on some routes across the Tasman, requiring Virgin and Air New Zealand to maintain capacity across those routes, with the ACCC set to review the capacity over the next two years, commencing in September 2015.

Both airlines should be delighted with the result, after pushing for a five-year authorisation, rather than the three years allowed under the ACCC’s draft authorisation released in July this year.

Rival Qantas Airways (ASX:QAN) and its partner Emirates have also been granted a five-year authorisation for their trans-Tasman alliance, including Qantas subsidiary Jetstar. The regulator said it was also concerned that Virgin and Air New Zealand would be at some competitive disadvantage on their own against the Qantas-Jetstar/Emirates alliance.

Foolish takeaway

This is good news for travellers, which should allow Virgin to compete effectively against Qantas on trans-Tasman routes. That should mean lower fares, more flights and better products, including access to loyalty program benefits and lounges.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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