Air NZ ruling buffets Virgin
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Air NZ ruling buffets Virgin
Wed "Sydney Morning Herald"
Air NZ ruling buffets Virgin
By Scott Rochfort
September 10, 2003
Fresh doubts have been raised over the timing of Virgin Blue's stockmarket float amid concerns the airline's plans to expand into New Zealand could be stifled by the looming trans-Tasman turf war between Qantas and Air New Zealand.
With the Australian Competition and Consumer Commission rejecting the proposed $NZ550 million ($490 million) alliance between Air NZ and Qantas as anti-competitive, analysts warned Virgin would have difficulty replicating the success of its domestic operations on the low-yielding trans-Tasman and New Zealand domestic markets.
"This is a major blow to Virgin Blue's international expansion plans, in that it will now make its expansion more costly, more risky, longer to implement and potentially less profitable," said Smith Barney analyst Jason Smith.
"This decision, combined with Qantas's launch of a budget carrier, will also make the proposed float much less attractive in our view," Mr Smith added.
In another worrying sign, Air New Zealand moved to spoil Virgin Blue's plans on the New Zealand domestic market, after abandoning a yet-to-be-signed agreement to free some of its domestic terminal space at Auckland Airport to Virgin.
Just last week Air NZ offered Virgin access to "one-sixth" of its domestic gates and check-in counters at the airport. The latest decision has no bearing on Virgin's access to international gates in New Zealand.
While the NZ Commerce Commission has yet to make a decision on the deal, Air NZ chief Ralph Norris said yesterday's ACCC decision meant his company no longer would "bend over backwards" to assist Virgin. "It's every airline for itself," he said.
Virgin Blue's head of strategy, David Huttner, insisted Virgin's plans to fly to New Zealand were still on track, noting the airline had placed job advertisements for New Zealand crew just last weekend.
But Mr Huttner declined to give any potential timetable for Virgin's first landing in New Zealand.
"The problem is that Qantas and Air New Zealand will read the paper tomorrow," he said.
Mr Huttner said Virgin domestic flights in New Zealand would now probably miss Auckland, while "we probably look to building something akin to the old 'tin shed' at Sydney Airport".
While it was widely expected the ACCC would reject the deal, Qantas shares slumped 22c to $3.30 immediately after the decision, recovering to close 16c lower at $3.36. Air NZ closed 7c lower at 48c.
Some analysts also questioned Air NZ's recent pleas that its long-term viability depended on its proposed alliance with Qantas.
In light of Air NZ reporting its first profit over the Tasman in five-years and also having $NZ850 million of free cash on its balance sheet, Merrill Lynch analyst Simon Gresham said: "The assumption that they are an endangered species may be premature, given their recent performance."
Meanwhile, the Air NZ chief said he was "amazed at the flagrant error in the ACCC press release" which stated that Qantas and Air NZ had a 90 per share of the trans-Tasman aviation market. With the recent entry of Emirates, Mr Norris said the true figure was 75 per cent, and possibly 65 per cent with the entry of Virgin.
But ACCC commissioner Ed Willett said that, unlike Air NZ, the ACCC calculated how many passengers travelled across the Tasman, not how many seats.
"The usual way of counting market share is how many products you sell not how many you make," Mr Willett said.
===========================================
Wed "Sydney Morning Herald"
Plenty of cheek in airlines' bid to link
By Elizabeth Knight
September 10, 2003
On a scale of one to 10 for cheeky corporate try-ons, the attempt by Qantas and Air New Zealand to secure a backdoor merger has to rate a nine.
The $500 million-plus deal that the airlines were attempting to get through the Australian and New Zealand competition regulators involved Qantas taking a 22 per cent equity interest in the New Zealand carrier but, more importantly, engaging in a range of agreed scheduling and pricing.
Both knew it to be anti-competitive using the standard tests, and so both argued their cases on the basis that they had public benefits that outweighed the competitive issues.
Qantas boss Geoff Dixon always approaches even the most unwinnable situations as a street fighter with disproportionate optimism.
This deal was no exception.
However, it's hard to believe that someone as wily as Dixon would not have known from the start that the chances of getting this across the line were slim.
Even now, he is reserving his rights to appeal the decision to the Australian Competition Tribunal.
But his tough talking is little more than rhetoric.
The fact is that the trans-Tasman route is dominated - with their share totalling 90 per cent - by Air New Zealand and Qantas and, regardless of behavioural undertakings, there was every chance that over time the prices on this service would increase and the frequency would decrease.
If Qantas and Air New Zealand did not think there was an opportunity to commercially exploit this union then they wouldn't be trying it.
And this is precisely why the Australian Competition and Consumer Commission concluded that the greatest beneficiaries of such a deal would be Qantas and Air New Zealand shareholders.
In turn, this is why the Qantas share price took a 4.5 per cent dive on yesterday's announcement.
It serves as a reminder that the ACCC is there to administer the Trade Practices Act and look after the interests of consumers.
The notion that there were hundreds of millions of dollars in economic benefits for Australia and New Zealand was an argument debunked by almost all the experts.
Even the tourism authorities didn't swallow that one.
The next point - and one that was argued equally by airlines on both sides of the Tasman - is that without an alliance their medium to long-term commercial future would be threatened by their becoming small and sidelined in the international aviation market.
This was a particularly difficult point to argue given the robust performance of Qantas in the post-Ansett environment.
Air New Zealand has suffered serious financial difficulties over the past couple of years but because of mismanagement - primarily due to the acquisition and subsequent collapse of Ansett.
And in recent times it has staged a stellar recovery.
It is now primarily owned by the New Zealand Government, which would clearly love to offload it to Qantas. But the NZ Government passed up that opportunity in 2001 when it decided it wanted to retain a national carrier.
Neither airline risks extinction and Air NZ's Ralph Norris had to admit this as late as last week.
The only question that remains to be answered is why the ACCC took so long to announce a decision that was so obvious.
The draft determination of the ACCC was put out several months ago by the then-chairman Allan Fels, and it was clear enough that Qantas would need to split the atom to have Samuel alter Fels's definitive position.
Many will read this decision as a signal of toughness by the new head of the ACCC.
It's not. A more realistic view of his imprimatur on the commission would be the rejection of Australian Gas Light Company's move on Victorian power operator Loy Lang.
The airline decision was a given.
It would be far more difficult for him to have approved the merger than to have followed the draft determination and knocked it back.
The more interesting feature of Samuel's decision is his wording - he described it as "highly anti-competitive".
Thus any move to revisit the decision would require extensive alteration in the structural landscape across the Tasman.
The move by Emirates to enter this market is not enough. Neither is the potential entry - now mooted for next year - of Virgin, unless it achieves significant market share.
The Minister for Transport, John Anderson, is a near lone voice in his hope that over time this deal will become acceptable to the authorities.
This was an interesting effort by the airlines to get a deal through the regulators. But it has failed and Dixon's time would be better spent focusing on how to achieve even better returns from the airline he is working with now.
============================================
Air NZ ruling buffets Virgin
By Scott Rochfort
September 10, 2003
Fresh doubts have been raised over the timing of Virgin Blue's stockmarket float amid concerns the airline's plans to expand into New Zealand could be stifled by the looming trans-Tasman turf war between Qantas and Air New Zealand.
With the Australian Competition and Consumer Commission rejecting the proposed $NZ550 million ($490 million) alliance between Air NZ and Qantas as anti-competitive, analysts warned Virgin would have difficulty replicating the success of its domestic operations on the low-yielding trans-Tasman and New Zealand domestic markets.
"This is a major blow to Virgin Blue's international expansion plans, in that it will now make its expansion more costly, more risky, longer to implement and potentially less profitable," said Smith Barney analyst Jason Smith.
"This decision, combined with Qantas's launch of a budget carrier, will also make the proposed float much less attractive in our view," Mr Smith added.
In another worrying sign, Air New Zealand moved to spoil Virgin Blue's plans on the New Zealand domestic market, after abandoning a yet-to-be-signed agreement to free some of its domestic terminal space at Auckland Airport to Virgin.
Just last week Air NZ offered Virgin access to "one-sixth" of its domestic gates and check-in counters at the airport. The latest decision has no bearing on Virgin's access to international gates in New Zealand.
While the NZ Commerce Commission has yet to make a decision on the deal, Air NZ chief Ralph Norris said yesterday's ACCC decision meant his company no longer would "bend over backwards" to assist Virgin. "It's every airline for itself," he said.
Virgin Blue's head of strategy, David Huttner, insisted Virgin's plans to fly to New Zealand were still on track, noting the airline had placed job advertisements for New Zealand crew just last weekend.
But Mr Huttner declined to give any potential timetable for Virgin's first landing in New Zealand.
"The problem is that Qantas and Air New Zealand will read the paper tomorrow," he said.
Mr Huttner said Virgin domestic flights in New Zealand would now probably miss Auckland, while "we probably look to building something akin to the old 'tin shed' at Sydney Airport".
While it was widely expected the ACCC would reject the deal, Qantas shares slumped 22c to $3.30 immediately after the decision, recovering to close 16c lower at $3.36. Air NZ closed 7c lower at 48c.
Some analysts also questioned Air NZ's recent pleas that its long-term viability depended on its proposed alliance with Qantas.
In light of Air NZ reporting its first profit over the Tasman in five-years and also having $NZ850 million of free cash on its balance sheet, Merrill Lynch analyst Simon Gresham said: "The assumption that they are an endangered species may be premature, given their recent performance."
Meanwhile, the Air NZ chief said he was "amazed at the flagrant error in the ACCC press release" which stated that Qantas and Air NZ had a 90 per share of the trans-Tasman aviation market. With the recent entry of Emirates, Mr Norris said the true figure was 75 per cent, and possibly 65 per cent with the entry of Virgin.
But ACCC commissioner Ed Willett said that, unlike Air NZ, the ACCC calculated how many passengers travelled across the Tasman, not how many seats.
"The usual way of counting market share is how many products you sell not how many you make," Mr Willett said.
===========================================
Wed "Sydney Morning Herald"
Plenty of cheek in airlines' bid to link
By Elizabeth Knight
September 10, 2003
On a scale of one to 10 for cheeky corporate try-ons, the attempt by Qantas and Air New Zealand to secure a backdoor merger has to rate a nine.
The $500 million-plus deal that the airlines were attempting to get through the Australian and New Zealand competition regulators involved Qantas taking a 22 per cent equity interest in the New Zealand carrier but, more importantly, engaging in a range of agreed scheduling and pricing.
Both knew it to be anti-competitive using the standard tests, and so both argued their cases on the basis that they had public benefits that outweighed the competitive issues.
Qantas boss Geoff Dixon always approaches even the most unwinnable situations as a street fighter with disproportionate optimism.
This deal was no exception.
However, it's hard to believe that someone as wily as Dixon would not have known from the start that the chances of getting this across the line were slim.
Even now, he is reserving his rights to appeal the decision to the Australian Competition Tribunal.
But his tough talking is little more than rhetoric.
The fact is that the trans-Tasman route is dominated - with their share totalling 90 per cent - by Air New Zealand and Qantas and, regardless of behavioural undertakings, there was every chance that over time the prices on this service would increase and the frequency would decrease.
If Qantas and Air New Zealand did not think there was an opportunity to commercially exploit this union then they wouldn't be trying it.
And this is precisely why the Australian Competition and Consumer Commission concluded that the greatest beneficiaries of such a deal would be Qantas and Air New Zealand shareholders.
In turn, this is why the Qantas share price took a 4.5 per cent dive on yesterday's announcement.
It serves as a reminder that the ACCC is there to administer the Trade Practices Act and look after the interests of consumers.
The notion that there were hundreds of millions of dollars in economic benefits for Australia and New Zealand was an argument debunked by almost all the experts.
Even the tourism authorities didn't swallow that one.
The next point - and one that was argued equally by airlines on both sides of the Tasman - is that without an alliance their medium to long-term commercial future would be threatened by their becoming small and sidelined in the international aviation market.
This was a particularly difficult point to argue given the robust performance of Qantas in the post-Ansett environment.
Air New Zealand has suffered serious financial difficulties over the past couple of years but because of mismanagement - primarily due to the acquisition and subsequent collapse of Ansett.
And in recent times it has staged a stellar recovery.
It is now primarily owned by the New Zealand Government, which would clearly love to offload it to Qantas. But the NZ Government passed up that opportunity in 2001 when it decided it wanted to retain a national carrier.
Neither airline risks extinction and Air NZ's Ralph Norris had to admit this as late as last week.
The only question that remains to be answered is why the ACCC took so long to announce a decision that was so obvious.
The draft determination of the ACCC was put out several months ago by the then-chairman Allan Fels, and it was clear enough that Qantas would need to split the atom to have Samuel alter Fels's definitive position.
Many will read this decision as a signal of toughness by the new head of the ACCC.
It's not. A more realistic view of his imprimatur on the commission would be the rejection of Australian Gas Light Company's move on Victorian power operator Loy Lang.
The airline decision was a given.
It would be far more difficult for him to have approved the merger than to have followed the draft determination and knocked it back.
The more interesting feature of Samuel's decision is his wording - he described it as "highly anti-competitive".
Thus any move to revisit the decision would require extensive alteration in the structural landscape across the Tasman.
The move by Emirates to enter this market is not enough. Neither is the potential entry - now mooted for next year - of Virgin, unless it achieves significant market share.
The Minister for Transport, John Anderson, is a near lone voice in his hope that over time this deal will become acceptable to the authorities.
This was an interesting effort by the airlines to get a deal through the regulators. But it has failed and Dixon's time would be better spent focusing on how to achieve even better returns from the airline he is working with now.
============================================
Moderate, Modest & Mild.
Good news, imo, for everybody who would have been adversely affected by this proposed merger.
The pax - who would have seen an overall decrease in frequencies, and reduced competition - the staff of both airlines, who would certainly have experienced more redundancies, and for Air New Zealand (the company) - the management of which needs to inject some fresh thinking into the running of the airline, to make it a better product than it currently is.
The pax - who would have seen an overall decrease in frequencies, and reduced competition - the staff of both airlines, who would certainly have experienced more redundancies, and for Air New Zealand (the company) - the management of which needs to inject some fresh thinking into the running of the airline, to make it a better product than it currently is.
