The proposed equity alliance between Qantas Airways and Air New Zealand (ANZ) is in deep trouble following a final ruling by the New Zealand Commerce Commission rejecting the deal.
New Zealand's decision comes a month after its Australian counterpart reached the same result. Both agencies found that the anticompetitive effects of the proposed alliance clearly outweighed its economic benefits.
As proposed, the two carriers would have co-ordinated fares and capacity in all markets where they now compete. The airlines argued that more tourism marketing, improved synergies and other positive effects would have compensated for the loss in competition. They also argued that rising competition by other carriers, especially Virgin Blue's plan to launch flights to New Zealand, would ensure that consumers still retained a choice. But the agency disagreed with the numbers and concluded that competition from other carriers "is not sufficient to allay all of the commission's concerns".
It was widely thought that New Zealand's commission might be more sympathetic to ANZ's expressed fear that, without the alliance, it faced a war of attrition from a better-capitalised Qantas that would ultimately cripple or kill it.
But the commission discounted this as unrealistic. No rational airline, it concluded, would engage in a prolonged fare war when it could not later recoup those costs.
Geoff Dixon and Ralph Norris, chief executives of the two airlines, are meeting to discuss their options. Those include appeals, a scaled-down alliance, or forgetting about any co-operation.
The airlines have already appealed against the Australian decision, but they must secure favourable rulings in both countries before their alliance can proceed. An appeal in New Zealand looks especially difficult due to the High Court's limited scope of review.
ANZ foresees the possibility of proceeding alone. Just days before New Zealand's adverse decision, ANZ unveiled a four year restructuring plan that Ralph Norris now calls "Plan B".
Hoping to save NZ$245 million ($159 million), ANZ plans to cut its 10,000-strong workforce by 15% over the next four years, mostly through attrition; phase in new Airbus A320s; use more computer technology, including electronic ticketing and electronic data transfers between airlines; improve online booking and flight frequencies; speed up boarding; use better border processing on international flights; enhance loyalty programmes; introduce new staff uniforms; and add in-flight offerings.
No changes have been announced on international routes, which represent a major part of the airline's revenue. ANZ has also launched its previously announced Tasman Express service, an extension of its domestic discount model, to most Australian flights.
If the deal with ANZ collapses, some observers expect Qantas to seek an alliance elsewhere. Ian Thomas, analyst at Sydney's Centre for Asia Pacific Aviation, says: "American Airlines is the most obvious target."
Source: Airline Business
