Air NZ pleads for alliance
Sat "Herald Sun"
Air NZ pleads for alliance
By GEOFF EASDOWN
22mar03
A GLOOMY account of Air New Zealand's operations, describing the carrier as inferior and at risk financially, has been handed to the New Zealand Government.
The NZ Treasury report says the Kiwi carrier admitted that its international flights were "relatively inferior to that of major competitors".
The report also points out that the airline's gearing position could deteriorate quickly if adverse drivers, such as higher fuel prices, eventuated.
The 103-page study was prepared for the NZ Government by economic analysts, First NZ Capital.
The document was among a large parcel of papers the NZ Government released yesterday involving the proposed alliance between Air NZ and Qantas.
Among the released papers were the detailed submissions both airlines presented to the Australian Competition and Consumer Commission and to NZ's Commerce Commission seeking approval for Qantas to take a 22.5 per cent stake in its troubled rival from across the Tasman.
Qantas, itself, acknowledges in its ACCC application that Air NZ will suffer serious consequences if the proposed alliance does not go ahead.
The Australian airline told the ACCC that without the merger Air NZ would terminate unprofitable services, release aircraft from its fleet, and retrench to core domestic and international services.
"The commercial reality is that if Air NZ reduced capacity on these sectors, competitors would replace the capacity," Qantas says.
"Air NZ would be caught in a vicious cycle where the remaining profitable sectors would be weakened: a death spiral," says Qantas.
Air NZ chairman John Palmer separately told the NZ Government that his board "unanimously concluded" that an alliance with Qantas "was the only sustainable opportunity available to Air NZ".
Mr Palmer said the alliance was the only way for the airline to avoid the debilitating and inefficient costs of a battle (with Qantas) which Air NZ had little chance of winning without substantial financial support from shareholders.
"If approved, the alliance offers the opportunity to improve the long-term certainty of a committed NZ-based, international airline serving the air transport and related tourism requirements of NZ."
The First NZ Capital report to the NZ Treasury argues that Singapore Airlines, United Airlines and Qantas offer better products to travellers.
"Major differentiating factors include Air NZ's lack of sleeper beds in first class and business class and the absence of in-flight entertainment systems in economy class.
"The uncompetitive offering restricts Air NZ's ability to charge premium yields," the First NZ Capital report says, adding that most of the carrier's wide-bodied, long-haul aircraft employ 1980s technology.
The report adds that the carrier's ability to fund debt and acquire new aircraft would be constrained under the existing stand alone scenario.
By standing alone, the carrier would also remain exposed to "exogenous" variables which would further weaken its financial position.
Qantas shares rose 10 cents yesterday to $3.45 while Air New Zealand was up 2 cents to 48.5 cents.