Wirraway
16th Sep 2003, 18:24
news.com.au
Competition woes grip AirNZ
By Darrin Barnett
16Sep03
AIR New Zealand expects its market share on the trans-Tasman route to drop below 30 per cent, its lowest ever level, as a result of new entrants and increased competition.
Air NZ chief executive Ralph Norris said the touted start-up of Virgin Blue and proliferation of carriers who fly to NZ or Australia from a third country would make it one of the most competitive airline markets in the world.
Qantas Airways has also ramped up its NZ services in the past month, introducing flights from Queenstown to Auckland and 27 of its lower cost Jet Connect return flights on the trans-Tasman route.
Australian Competition and Consumer Commission chairman Graeme Samuel last week estimated Air NZ currently held 52 per cent of the trans-Tasman market by volume and rejected its proposed $500 million tie-up with Qantas Airways as anti-competitive.
However, Mr Norris said so-called "Fifth Freedom" carriers, who would rather fly a return trip across the Tasman than leave their aircraft parked, were able to marginally price flights between Australia and New Zealand, driving down returns.
"Air New Zealand is currently one of 12 airlines competing for trans-Tasman passengers, with another expected to enter, making it one of the most competitive airline markets in the world," Mr Norris said in the Air NZ annual report.
Mr Norris said that while Air NZ had posted a commendable net profit figure of $NZ165.7 million ($146 million) for 2002/03, the airline could not become complacent.
"We must address the fundamental problems of over-capacity and cost structure and it is for this reason that we believe that the alliance with Qantas provides the best future for Air New Zealand."
Both Qantas and Air NZ have indicated they will appeal to the Australian Competition Tribunal, while the NZ Commerce Commission is expected to release its findings by the end of the month.
Mr Norris said the company was determined to continually transform and simplify its business to remain ahead of industry change but this hinged on regulatory approval of the Qantas deal.
Under the proposal put to the ACCC, the airlines had wanted to merge internal operations in NZ and on trans-Tasman routes. Qantas also wanted to take a 22.5 per cent stake in Air New Zealand.
Mr Norris' thoughts were today echoed by Air NZ chairman John Palmer, who said his airline needed to avoid a "war of attrition" with its much larger cousin.
"Rather than exhausting our limited financial and human resources in a grinding war of attrition with Qantas, we have proposed the creation of a strong regional alliance that will enable us jointly to face the challenges confronting the industry," Mr Palmer said.
"This is a bold and innovative proposal and I fully endorse the firm view of the board and management that this alliance is the only realistic way for Air New Zealand to provide for a sustainable independent future."
Investment bank Smith Barney said in a note to clients that despite a solid profit turnaround in FY03 and improving outlook, the current share price was close to its target.
"We are also concerned that further competition internationally will impact yields and that a domestic low cost carrier could enter and challenge their domestic NZ position," it said.
"Facing material competition risks, the current share price is unlikely to appreciate further, unless the Alliance proceeds."
At 1.47pm (AEST), Air NZ shares were down 1.5c at 49.5c, while Qantas shares had fallen 5c to $3.24.
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Competition woes grip AirNZ
By Darrin Barnett
16Sep03
AIR New Zealand expects its market share on the trans-Tasman route to drop below 30 per cent, its lowest ever level, as a result of new entrants and increased competition.
Air NZ chief executive Ralph Norris said the touted start-up of Virgin Blue and proliferation of carriers who fly to NZ or Australia from a third country would make it one of the most competitive airline markets in the world.
Qantas Airways has also ramped up its NZ services in the past month, introducing flights from Queenstown to Auckland and 27 of its lower cost Jet Connect return flights on the trans-Tasman route.
Australian Competition and Consumer Commission chairman Graeme Samuel last week estimated Air NZ currently held 52 per cent of the trans-Tasman market by volume and rejected its proposed $500 million tie-up with Qantas Airways as anti-competitive.
However, Mr Norris said so-called "Fifth Freedom" carriers, who would rather fly a return trip across the Tasman than leave their aircraft parked, were able to marginally price flights between Australia and New Zealand, driving down returns.
"Air New Zealand is currently one of 12 airlines competing for trans-Tasman passengers, with another expected to enter, making it one of the most competitive airline markets in the world," Mr Norris said in the Air NZ annual report.
Mr Norris said that while Air NZ had posted a commendable net profit figure of $NZ165.7 million ($146 million) for 2002/03, the airline could not become complacent.
"We must address the fundamental problems of over-capacity and cost structure and it is for this reason that we believe that the alliance with Qantas provides the best future for Air New Zealand."
Both Qantas and Air NZ have indicated they will appeal to the Australian Competition Tribunal, while the NZ Commerce Commission is expected to release its findings by the end of the month.
Mr Norris said the company was determined to continually transform and simplify its business to remain ahead of industry change but this hinged on regulatory approval of the Qantas deal.
Under the proposal put to the ACCC, the airlines had wanted to merge internal operations in NZ and on trans-Tasman routes. Qantas also wanted to take a 22.5 per cent stake in Air New Zealand.
Mr Norris' thoughts were today echoed by Air NZ chairman John Palmer, who said his airline needed to avoid a "war of attrition" with its much larger cousin.
"Rather than exhausting our limited financial and human resources in a grinding war of attrition with Qantas, we have proposed the creation of a strong regional alliance that will enable us jointly to face the challenges confronting the industry," Mr Palmer said.
"This is a bold and innovative proposal and I fully endorse the firm view of the board and management that this alliance is the only realistic way for Air New Zealand to provide for a sustainable independent future."
Investment bank Smith Barney said in a note to clients that despite a solid profit turnaround in FY03 and improving outlook, the current share price was close to its target.
"We are also concerned that further competition internationally will impact yields and that a domestic low cost carrier could enter and challenge their domestic NZ position," it said.
"Facing material competition risks, the current share price is unlikely to appreciate further, unless the Alliance proceeds."
At 1.47pm (AEST), Air NZ shares were down 1.5c at 49.5c, while Qantas shares had fallen 5c to $3.24.
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