1. International Conference on Air Transport, Air Law and Regulation Overview of Recent Developments with the Trans-Tasman Single Aviation Market By Ian Thomas, Managing Consultant, CAPA Consulting May 26 2010 www.capaconsulting.net 1

2. International Conference on Air Transport, Air Law and Regulation SAM – a Chequered History Two “friendly” countries with mutual interests Natural extension of CER The roadmap under 1992 Australia-New Zealand MoU: – Lifted capacity restrictions – Double disapproval tariff regime – Phased liberalisation to full market access by 1994 Framed with best intentions, but other priorities intervened SAM delayed to 1996; full beyond rights added under “open skies” agreement in 2000 Where to now....a common border? 2

3. International Conference on Air Transport, Air Law and Regulation The Story of SAM over 10 Years: +50% Seats; +65% flights 3  Non-SAM Carriers  SAM Carriers * Source: SRS Analyser averaged for June and Dec to take into account seasonal variation

4. International Conference on Air Transport, Air Law and Regulation Jetstar starts operations 4 Competition & Service Development peaked in 2003-04 with entry of LCCs * Source: SRS Analyser averaged for June and December to take into account seasonal variation Entry of Pacific Blue, Freedom Air and Emirates

5. International Conference on Air Transport, Air Law and Regulation 5 Evolution of Airline Market Shares - LCCs capture 22% of Tasman Seats * Source: SRS Analyser averaged for June and Dec to take into account seasonal variation

6. International Conference on Air Transport, Air Law and Regulation The Roadblock to Consolidation Logical progression towards trans-Tasman consolidation...or is it? Qantas/Air New Zealand alliance bids twice hit competition legislation barriers Seemingly similar legislative prerequisites on both sides of the Tasman, different interpretation Concept of “public benefits” test critical to outcome – Australia’s focus narrower; consumer welfare paramount – New Zealand assessed consumer+producer interests 6

7. International Conference on Air Transport, Air Law and Regulation Qantas (submission to the Productivity Commission, August 2004): “Such uncertainty and cost is not conducive to a productive, dynamic single economic market.... The competition laws of Australia and New Zealand should be integrated, so that identical laws apply in both countries. In addition, it is critical that these laws are interpreted and applied consistently.” 7

8. International Conference on Air Transport, Air Law and Regulation 8 Market Share Composition on the Tasman today; 82% of seats held by SAM Carriers 22.1% 9.7% 16.4% 34.2% 13.2% 2.2% 1.3% 0.9% Seat Capacity Shares by Airline Year to June 2010 Source: SRS Analyser Suspended Tasman services during 09-10

9. International Conference on Air Transport, Air Law and Regulation The EU Model...not perfect but consistent The general competition rules of the EU Treaty apply to aviation on case-by-case basis – Some forms of co-operation permitted – Alliances approved if they do not eliminate competition and consumer benefits shown – Current alliances approved through individual exemptions, but conditions applied (e.g. freeze on capacity, relinquishing airport slots, and/or acceptance of interlining with competitors) EU Treaty also addresses abuse of dominant market position through e.g. predatory behaviour or some alliance arrangements 9

10. International Conference on Air Transport, Air Law and Regulation Key Take-out for ASEAN Airline industry caught between apparently competing objectives Uniform approach on competition law required to yield full benefits of mutilateral liberalisation Australia-NZ Air Services Agreement provides for each country’s laws to apply ASEAN also favours state-specific strategy under AEC blueprint, developed under regional guidelines The Tasman experience emphasises the importance of getting the detail aligned for real and effective harmonisation of national policy 10

11. International Conference on Air Transport, Air Law and Regulation Additional Slides 11

12. International Conference on Air Transport, Air Law and Regulation Open Capacity with UK Open Skies with US Open Capacity with Singapore Open Skies with NZ Single Aviation Market Accession to PIASA under consideration Negotiating Open Skies with EU Liberalisation Score Card  Open skies, open capacity ASAs account for 50%+ of international passengers to/from Australia;  Open cargo arrangements in 32 ASAs;  No multilateral agreements; may enter PIASA. Liberalisation Score Card  Open skies, open capacity ASAs account for 50%+ of international passengers to/from Australia;  Open cargo arrangements in 32 ASAs;  No multilateral agreements; may enter PIASA. Australia’s Liberalisation Progress – a Mixed Bag 12

13. International Conference on Air Transport, Air Law and Regulation Australia’s International Service Profile in FY09; dominated by SE Asia and New Zealand 13 * Source: Bureau of Infrastructure, Transport and Regional Economics