Intrigue, politics and national pride. There's more than meets the eye to the proposed tie-up between Australasia's flag carriers.
This magazine has a confession to make. We don't understand how, based on given information, Australian and New Zealand regulators can decide how anti-competitive Qantas Airways' plan to buy 22.5% of Air New Zealand (ANZ) is. Here are the facts as we know them: Qantas wants to acquire 22.5% of ANZ and ANZ's board has unanimously backed the move. The two airlines will co-operate on services within, between and beyond Australia and New Zealand.
But one big question remains unanswered, and the airlines cannot be allowed to avoid answering it before regulators scrutinise the proposed deal. Which alliance will ANZ and Qantas belong to if the tie-up goes through? Qantas is a founder of Oneworld, which includes its 17% shareholder British Airways and American Airlines among others. ANZ is a member of rival Star Alliance, which includes United Airlines, Lufthansa and Singapore Airlines (SIA).
In announcing the proposed deal last week, ANZ said "no decision will be made in the near future and it should not be assumed that Air New Zealand will leave the Star Alliance". Really? Can we believe that no decision has been taken, whether formally or informally? If the issue has not been addressed after a year of talks between the two airlines what does it say of their commitments to their prospective partners? What does it also say of the value they place on their alliance memberships?
ANZ and Qantas have not told the full story. Surely the question of whether Qantas will leave Oneworld in favour of Star or whether ANZ will do the opposite is a fair one. If Qantas were to leave Oneworld for Star, BA would have to sell its Qantas stake and SIA would surely be eager to snatch it up. But this would raise new concerns for regulators over services to South-East Asia and North Asia and also for transpacific services between Australia and North America - served only by Star's United and ANZ, and Oneworld's Qantas.
What if ANZ left Star and joined Oneworld? This is the likely scenario. Qantas and BA have a successful joint service agreement in place that earns them plenty of money on flights between Australia and Europe. Australian regulatory approvals for the agreement expire in July next year and the assumption is they will seek to continue with the partnership. Will BA then try to join forces with ANZ, which already codeshares with SIA through Singapore?
These questions aside, is the deal as it has so far been laid out anti-competitive? Yes. Does this mean it should be blocked? No.
Low-fare carrier Virgin Blue - Qantas' only real rival in the Australian market following last year's collapse of ANZ subsidiary Ansett - wants to expand overseas and has said it aims to start with flights to New Zealand. It now says it will not operate across the Tasman if a Qantas/ANZ deal goes through as it "will not walk into a monopoly". Why not? Is that not what it consistently says it wants to do - provide more options to the consumer?
The fact is both ANZ and Qantas lose money on their services between Australia and New Zealand but politically feel they have to lay on ample frequencies. This is where the two airlines have a strong card up their sleeves: if the deal is blocked they may threaten to reduce loss-making services between the two countries - a threat that will not be underestimated by politicians.
There is another card that the two will likely play. ANZ has been on financially shaky ground since last year and escaped bankruptcy thanks to a government bailout that left Wellington with an 82% stake. During its crisis ANZ was forced to write down its investment in Ansett, which collapsed after Qantas refused to buy it. ANZ today argues that it needs a partnership with Qantas to survive as a force in Australasia. As a result, regulators will have to weigh the negative benefits of the deal with the possible alternative: that Qantas will be left as an even more dominant player in that part of the world.
Politically, this deal must go through. New Zealand does not want to be responsible for its flag-carrier forever, while Australia does not want to see another carrier in the region collapse. If Canberra does not let the deal go through, Qantas may do everything it can to further challenge ANZ's weak position.
Yes, the proposed deal is anti-competitive but in the airline game it is not always as simple as that. With barriers to entry so high, the proposed tie-up between ANZ and Qantas is not something to celebrate but one to be accepted as the best of a bad situation.
Source: Flight International
