Tues "The Age"
Airline alliance downed in court
By Scott Rochfort
Sydney
September 21, 2004
Qantas' plans to take a 22.5 per cent stake in Air New Zealand were finally abandoned yesterday after the airlines lost their appeal against the New Zealand Commerce Commission's rejection of their proposed trans-Tasman alliance.
More than two years after both airlines first flagged the idea of forming an alliance, and after spending tens of millions of dollars in legal costs, Qantas chief executive Geoff Dixon said it was time "to move on" after the NZ High Court dismissed the appeal.
But given Qantas' recent focus on Asia and growing speculation it could merge with an Asian carrier after its majority shareholder British Airways sold out this month, some industry sources said Qantas' priorities had already moved on anyway.
With most analysts already seeing the decision as inevitable, Air NZ shares rose 2 ¢ to $1.75 and Qantas 1 ¢ to $1.41. Both airlines said they would still look at saving costs by forming a closer operational relationship but would remain competitive.
Mr Dixon, who is due to meet Air NZ chief executive Ralph Norris on Friday, said both airlines were considering a series of potential cost-saving options.
Given talk that Qantas wants to use Air NZ's maintenance facilities to take advantage of NZ's cheaper labour costs, Mr Dixon would only single out "inventory rationalisation" as an area of possible co-operation.
Both airlines have Boeing 737s, 747s, 767s and Airbus 320s in their fleets, and Mr Dixon said it was logical for both airlines to share parts.
He said no Qantas jobs would be lost from any deal between the airlines.
While Air NZ has spent $NZ20 million ($A19 million) on legal costs appealing against the Australian Competition and Consumer Commission's and the NZCC's rejection of the alliance, Qantas has not disclosed its court costs.
Air NZ chief executive Ralph Norris said he was confident both airlines could still save tens of millions of dollars from closer co-operation.
Qantas and Air NZ are still hoping to save costs by forming a closer operational relationship.Yet Mr Norris said the savings from the rejected alliance would have been "significantly greater" than the $NZ30 million a year cited by the NZCC.
Given Air NZ's strong turnaround over the past two years and ongoing efficiency drive, Mr Norris said he was "confident of our prospects in the short to medium term".
After being saved from bankruptcy with a $NZ885 million rescue package from the NZ Government in 2001, Air NZ now has more than $NZ1 billion in the bank. On a unit cost basis, it is now even more profitable than Qantas.
But looking beyond 2010, Mr Norris said the biggest challenge would be for Air NZ to find $NZ3.5 billion to $NZ4 billion to replace its fleet of eight 747-400s.
He said Air NZ had no plans to find another potential airline suitor.
Despite both airlines failing to convince the NZ High Court of the competitive threat posed by Pacific Blue and carriers such as Emirates on the trans-Tasman route, Mr Norris said air fares on the route were unsustainable.
"If you look at sector prices of $NZ99 to $NZ129, they are too low, in my view," Mr Norris said.
==========================================