Competition and Competition Policy in the Trans-Tasman Air Travel Market

New data on air fares offered on 29 trans-Tasman and domestic New Zealand routes are analysed to test whether competition between traditional or legacy airlines still matters for pricing in the new air travel regime characterised by internet booking systems and competition from low cost carriers. It is found that market structure does indeed still matter. Air fares are significantly lower on those domestic New Zealand routes where Air New Zealand faces competition from Qantas. In addition, on the trans-Tasman routes, the new entrants Virgin (Pacific) Blue and Emirates have put competitive pressure on Air New Zealand and Qantas, but such pressure would not be sufficient to compensate for loss of independent competition between the larger incumbents