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Wirraway
24th Nov 2003, 11:18
AAP

Air NZ, Qantas to continue truce
November 24, 2003 - 12:06PM

Air New Zealand and Qantas will continue a tentative truce while they appeal the rejection of their planned alliance by competition watchdogs on both sides of the Tasman, analysts say.

Both airlines would pursue business strategies independently while the appeals were heard, although competition would be less aggressive, Forsyth Barr, head of research Rob Mercer, told the Dominion Post.

However, Qantas had a brand to protect in New Zealand and it would have to increase domestic frequency and service standards using its lower cost Jetconnect model.

Failure to do so would allow Virgin Blue's NZ arm, Pacific Blue, to step into the gap, he said.

Qantas is losing an estimated $10 million a year on its NZ domestic services.

The alliance would reduce the volatility of Air NZ's earnings and the competitive threat in the longer term, Mr Mercer said.

Air NZ is planning an up-to-$200-million upgrade of its dated Boeing 747-400 business class cabins and entertainment systems, followed by the replacement of its Boeing 767-300 fleet in three or four years.

If the alliance is not approved, Air NZ will need to raise the money for those projects and for replacing the 747 fleet from shareholders.

The NZ government owns 82 per cent of the company.

"The commitment to upgrade the long-haul fleet... (means) they will want to have a competitive environment that is non-threatening," Mr Mercer said.

Macquarie New Zealand investment director Arthur Lim said Air NZ and Qantas would hold off competing aggressively during the appeal process.

"If you go to appeal, that means they are going to co-operate."

However, if the process ran too long, it could put pressure on the timing of a rights issue, which was needed to pay for the international fleet upgrade, if the appeal was ultimately not successful.

Mr Lim said the issue demonstrated Air NZ needed a strategic partner long-term, but that Qantas was the only interested party.

"In the landscape of the future, you cannot go it alone."

2003 AAP

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