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Wirraway
23rd Oct 2003, 00:53
Thurs "Sydney Morning Herald"

D-Day for Air NZ's alliance with Qantas
By Geoffrey Thomas
October 23, 2003

On the eve of the New Zealand competition watchdog's decision on Air NZ's equity alliance with Qantas, the Auckland-based airline has warned shareholders that this year's profit will only just pip its 2002-03 result.

Air NZ chief executive Ralph Norris, addressing the airline's annual meeting in Auckland yesterday, warned that the company's profitability was volatile, subject to numerous factors outside the airline's control and that dividends were not on the horizon. Mr Norris said that he expected a profit before one-off items and tax for 2003-04 of about $NZ220 million ($189 million).

"All other things being equal, we will deliver a profit slightly above that of the 2003 financial year," Mr Norris said.

Air NZ recorded a net profit of $NZ165.7 million last financial year, against a $NZ319 million loss in 2001-02. The profit was the first in four years, with accumulated losses over that period topping $NZ2.3 billion.

Mr Norris said while the airline had carried about 250,000 more passengers in the September quarter than last year, yields declined 6.5 per cent to NZ11.7c.

He said the airline's financial performance was being assisted by 12 per cent gains by the NZ dollar against the US dollar over the fiscal year as 45 per cent of the airline's costs were denominated in US dollars. "This equates to a gain of around $NZ10-15 million for every 1c increase against the US dollar," Mr Norris said.

The NZ Commerce Commission will announce today its long-awaited final decision on Air NZ $NZ550 million proposed alliance with Qantas.

The deal has already been rejected by the Australian corporate regulator but both airlines have lodged appeals with the Australian Competition Tribunal.

Air NZ shares firmed .5c to 45.5c and Qantas rose 2c to $3.55 yesterday.

The West Australian and agencies

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Thurs "The Dominion Post" NZ

Rejection of airline alliance could cost taxpayer
23 October 2003

Taxpayers might have to stump up with another $150 million if a proposed alliance between Air New Zealand and Qantas is rejected by the Commerce Commission today.

The money was part of a Government 2001 bail-out package which has cost taxpayers $885 million so far.

Most believe the commission will confirm its April draft decision and reject the alliance, which would see Qantas buying a 22.5 per cent stake in Air New Zealand for $550 million.

But there have been glimmers of hope for the alliance since the commission's six-day conference on the issue in August.

Commission acting chairwoman Paula Rebstock said at the end of conference that "things have moved on a little bit, to be honest, since the commission's draft determination".

Virgin Blue has committed to flying limited services on the Tasman, and Dubai-based Emirates Airline has become the third largest competitor between Auckland and the Australian east coast.

An industry source also said last month that the commission had begun work on a surveillance regime to police the alliance and the raft of conditions that could be imposed.

Forsyth Barr head of research Rob Mercer said the commission might view the alliance more favourably, but he doubted it would be enough to give its approval.

Without the alliance, Air New Zealand would have to raise about $200 million through a rights issue to reduce debt and finance the upgrading of its long-haul international fleet.

The Government would be called on to underwrite the capital raising, using the $150 million, Mr Mercer said.

The airlines say that consolidation among the world's airlines is inevitable and that without the alliance they will enter a "war of attrition" that Air New Zealand could not win.

Opponents say a price war is not credible, because it would harm Qantas financially with no certainty that it could recoup the losses longer term in a volatile industry.

Former commissioner Professor Kate Brown said this week that the $693 million gulf between what the two sides calculated to be the public impact of the alliance appeared impossible to bridge and the commission would stick to its guns.

Ms Brown said nothing should be read into the commission's decision to delay its final determination by four weeks - this was usually the result of a heavy workload or the need to get consensus between its economists and lawyers over the wording of a decision.

"They really do try to make sure that if they end in court they are going to win."

If the Commerce Commission turns down the alliance, Air New Zealand can appeal to the High Court.

The airlines are already appealing the Australian competition watchdog's decision last month to reject the alliance, and some observers believe that trying to fight appeals in both countries could be too difficult.

Sydney-based Centre for Asia Pacific Aviation Studies managing director Peter Harbison also expected the alliance would be turned down.

Given that both governments supported the alliance, it would be up to them to develop a comprehensive aviation policy that would allow the airlines to come together without the need for regulatory approval, Mr Harbison said.

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Wirraway
23rd Oct 2003, 10:01
Thursday October 23, 11:25 AM AEST
NZ Regulator/Air NZ, Qantas: Net Cost To Economy

WELLINGTON (Dow Jones)--New Zealand's competition watchdog the Commerce Commission has rejected the proposed alliance between Air New Zealand and Australia's Qantas Airways in its final ruling on the issue.

The commission's acting chairwoman Paula Rebstock told a press conference Thursday that the proposed alliance - that would see Qantas take a 22.5% stake in Air New Zealand - would damage competition, harm consumers, and therefore isn't in the interests of New Zealanders.

The alliance would substantially lessen competition in a number of markets, Rebstock said.

For consumers, the alliance could mean airfares going up by 19% on average, and there would also likely be fewer flights and reduced quality of service.

The entry of discount Australian carrier Virgin Blue to New Zealand's domestic market and on the trans Tasman route between Australia and New Zealand, plus the presence of other airlines, doesn't sufficiently allay the commission's concerns about reduced competition, Rebstock said.

The commission's analysis found that 190,000 New Zealanders would be deterred from traveling overseas due to the expected increase in airfares if the alliance went ahead.

That analysis also estimates that there would be a net cost to the New Zealand economy of NZ$$154.5 million in the third year of the alliance if it went ahead.

Australia's competition regulator has also rejected the alliance, but Air New Zealand and Qantas are appealing that ruling.

-Wellington Bureau, Dow Jones Newswires; 64-4-471-5990; [email protected]

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Dow Jones

Thursday October 23, 12:11 pm AEST
Qantas/Air NZ: To Look For Suitable Opportunities

SYDNEY (Dow Jones)--Qantas Airways Ltd. said Thursday it will hold talks with Air New Zealand Ltd. over the next few weeks after New Zealand's competition regulator rejected their strategic alliance proposal.

"We still believe an alliance between Qantas and Air New Zealand is in the best interests of aviation in the region and would deliver significant benefits to travelers and tourism," Qantas Chief Executive Geoff Dixon said in a statement.

Dixon said the New Zealand Commerce Commission, like its Australian counterpart, has taken a "very narrow view of competition and consumer interests and either ignored or underestimated the significant structural challenges facing the aviation industry."

Dixon said rulings by the NZCC and the Australian Competition & Consumer Commission "are at odds with what is occurring around the world," noting a recent merger deal with Air France and KLM.

In the U.S., Delta, Northwest, and Continental have been given approval to form a three-way alliance, and US Airways and United Airlines have recently expanded their codeshare alliance to cover 1,600 flight segments, Dixon said.

"There are simply too many airlines in the world today and it is inevitable that there will be further pressures toward consolidation and some very large powerful groups could emerge," he said.

Dixon said, "Qantas would look for suitable opportunities in this changing environment while continuing its current strategies of driving down costs, setting up a low-cost airline in Australia and investing in and growing both its domestic and international premium airlines."

In a separate statement, Air New Zealand Chairman John Palmer expressed disappointment at the NZCC's ruling on the proposed alliance, which would see Qantas buying a 22.5% stake in the New Zealand carrier for NZ$550 million.

Palmer and Chief Executive Ralph Norris will hold a media and analyst briefing at 0300GMT.

The NZCC's ruling pushed Qantas shares to an intraday low of A$3.43. Around 0202 GMT, Qantas shares were down 7 cents, or 2.0%, at A$3.48. Around 0206 GMT, Air New Zealand's Australian listed shares were down 3 cents, or 6.6%, at 42.5 cents.

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Wirraway
23rd Oct 2003, 14:39
Dow Jones

Thursday October 23, 3:29 PM AEST
Air NZ,Qantas May Try To Work Around Pact Rejection
By Christopher Niesche

WELLINGTON (Dow Jones)--Air New Zealand Ltd. and Qantas Airways Ltd. said they haven't decided whether to appeal the New Zealand regulator's rejection of their proposed alliance but may look at ways to work around the refusal.

The New Zealand Commerce Commission rejected the alliance Thursday, saying it would damage competition, be harmful to consumers and the benefits to the public wouldn't outweigh the detriments.

Both airlines said they wanted to analyze the decision and have discussions with each other before deciding whether to appeal.

However, Air New Zealand Chief Executive Ralph Norris indicated the airlines may try to pursue the alliance as far as possible within the bounds of competition regulations.

He was asked at a briefing after the decision whether Air New Zealand and Qantas might pursue an informal, code-sharing arrangement in Australia and a formal alliance on the long-haul routes.

"We'll certainly have some discussions with Qantas on what options are appropriate for us to consider in the bounds of what would be appropriate from a regulatory position," he said.

"Certainly I wouldn't rule out anything in that regard."

Under the planned formal alliance, Qantas was to take a 22.5% equity stake in Air New Zealand in exchange for a capital injection of NZ$550 million, and the two airlines would have cooperated on common routes.

In refusing to approve the Qantas cornerstone shareholding and the alliance itself, the NZCC said airfares would rise by up to 19% due to a reduction in competition.

The NZCC said its economic modeling showed that in the third year of the alliance there would be benefits to the public of NZ$40.5 million and detriments of NZ$195 million.

The airlines had argued that there would be a net increase from the alliance of over 60,000 inbound tourists to New Zealand a year. But according to the NZCC's calculations, there would be a net loss of 107,000 tourists coming to New Zealand annually as a result of the alliance.

Qantas Chief Executive Geoff Dixon said the ruling by the NZCC and an earlier rejection by the Australian Competition & Consumer Commission have taken a "very narrow view of competition and consumer interests and either ignored or underestimated the significant structural challenges facing the aviation industry."

He said "Qantas would look for suitable opportunities in this changing environment while continuing its current strategies of driving down costs, setting up a low-cost airline in Australia and investing in and growing both its domestic and international premium airlines."

Air New Zealand Chairman John Palmer said the decision was "very clearly a very academic decision."

"Despite the mountain of economic evidence and commercial information, the decision has ignored the commercial reality of our business and aviation in this part of the world," he said.

Air New Zealand had said that it would be the loser in a battle of attrition with Qantas if it isn't allowed to form the alliance, and probably won't survive.

But the NZCC rejected this argument. The commission's acting chairwoman Paula Rebstock said that without the alliance "there would be a gradual recovery in the financial position of Air New Zealand and its ongoing financial viability over the short to medium term."

Even the airlines' offer to make room for competitors "would not shift the balance between benefits and detriments such to allow the proposal to go ahead," Rebstock said.

While the airlines decide whether to pursue a High Court appeal, they shouldn't expect any help from the New Zealand government, which supports the alliance but said Thursday it won't override the NZCC decision.

The rejection of the alliance was widely anticipated, but still Air NZ's share price tumbled after the announcement, ending down 4 cents, or 7.6%, at NZ$0.49. It had earlier hit a low for the day of NZ$0.48.

"In the medium term we think the business is worth more than 48 cents but the disappointment might see some selling for a little while," said Richard Leggat, head of sales at UBS.

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