Duff
Your point about Australia not being a big player is valid, but needs some expansion.
Running an airline is a costly operation. You can either be a little player, with a very small fleet, or you can start international operations & by necessity, take on a larger cost structure.
Recent history would tend to show that to survive, a certain critical mass of underlying market is needed, unless you can attract through-traffic. This is what is driving consolidation in Europe: those airlines with a reasonably-sized domestic market (eg. BA, AF, LH) are survivng (and even make money now & then); those without a domestic market big enough to cover their cost base are falling apart (SN, SR, TP) are going/have gone bust (or are being bailed out by the taxpayer).
SQ survives on through-traffic (guess where from??!!), as does EK (hence their large network into te subcontinent); CX relies on traffic from China and Japan.
But in terms of 'national' carriers:
Since AC took over CP (both of which had marginal profitability prior), several attempts have been made at setting up another carrier in Canada - the only one to succeed has been a low-cost.
My point? Together, Australia & NZ's population is ALMOST the size of Canada - but Canada has ONE main carrier; a bit bigger than Scandinavia (3 countries combined) - ONE main carrier; France (ONE main carrier) is over 2.5 times bigger; Germany (ONE main carrier) is over 3.5 times bigger. So - both countries are fooling themselves if they think they can support zillions of 'major' airlines, without charging very high fares. I frankly don't give a rat's whether the corporate HQ is in SYD or AKL (or BNE, CHC or MEL) but at the moment, Aust/NZ airline customers are effectively paying too much through having to support two sets of infrastructures. Moreover, unless there is an explicit government guarantee, one's cost of funds would be lots higher than the other.
Again, I cannot see the benefit from tying up with people who, when the going gets tough, you won't see for dust - over people who have to stick around & sort it out because it's their own patch. Sure, replace SQ with LH or UA or such & let's revisit this topic in the next downturn and see if they're still holding hands.
Time for both countries to realise that apart, neither is worth a pinch globally but together, they've suddenly got a G7-size economy.
It's an interesting contrast with Europe, where the smaller countries couldn't wait to get into the Euro so they could get swept up in the larger economies' wake; even today, there are about 10 or 12 more knocking at the door, because they realise that economically, there's strength in size. Nationalism doesn't pay the bills.