The ball is in Virgin's court
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The ball is in Virgin's court
Tues "Melbourne Age"
The ball is in Virgin's court
June 24 2003
There was more than a tinge of desperation in Ralph Norris's plea to competition regulators yesterday to approve the controversial alliance between Qantas and Air New Zealand. Norris, Air NZ's chief executive officer, knows the chances of the NZ Commerce Commission and Australian Competition and Consumer Commission withdrawing their opposition to the alliance are almost non-existent.
Less than a fortnight ago the NZCC revised its estimate of net detriment to consumers as a result of the alliance from its original estimate of $NZ155-$NZ402 million within three years ($A135-$A350 million) to $NZ195-$NZ466 million.
That revision was sufficient to convince most observers of the airlines that the slim hope of a clearance had vanished, despite the proposed entry of Emirates Airlines to the NZ industry and Virgin Blue's application for rights to fly to NZ - an application conditional on the nature of the regulators' final ruling.
Norris warned yesterday that, without the $400 million a year of cost savings from the alliance and the $500 million of capital from Qantas that would cement it, his airline was acutely vulnerable.
The present head-to-head competition between Air NZ and Qantas was unsustainable, he said.
If a budget airline (read Virgin Blue) were to be launched in NZ, the consequences would range from the withdrawal or failure of one airline to Air NZ being made vulnerable to full takeover or forced to rely on ongoing state support.
Norris and his team have done a remarkable job of stabilising Air NZ and improving its competitive and financial positions, given the difficult conditions within the global industry.
His dire warnings of the prospects for Air NZ if the regulators' maintain their stances could be regarded as cynical and/or alarmist.
Air NZ has, however, had a preview of what might happen in NZ if it can't secure a big brother.
Ansett was run down and ill-prepared for the fare wars that broke out when Impulse and Virgin Blue mounted their assault on the Australian domestic market and destroyed it and wounded its parent, Air NZ. Air NZ is better managed and government-controlled, but remains undercapitalised and, post-Ansett, over-reliant on a tiny domestic market.
Virgin Blue could trade a contribution to helping to get the alliance approved for a profitable piece of a competitive duopoly.
The lesson from Ansett's demise is that in a contest between two full-service airlines and a budget airline start-up, the weaker of the full-service carriers is vulnerable. If Virgin Blue launches an NZ campaign, or a credible third player emerges with a budget airline strategy, Air NZ will have no room to manoeuvre.
It would be dependent on its ability to secure open-ended access to new capital from the New Zealand taxpayer, which Wellington has said it will not provide.
Both the NZ and Australian Governments are supportive of the alliance and its potential to secure their national flag carriers' medium-term futures within a volatile and unprofitable global industry.
While Norris indicated that Air NZ and Qantas had made further submissions to the regulators, which include challenges to the economic assumptions on which the regulators have based their opposition (Air NZ says the alliance would generate $NZ189-$NZ256 million, or $A164-$A223 million, of annual net benefits) it is improbable that the airlines could prove no competitive detriment from operating in tandem within the NZ market and on the cross-Tasman routes.
Virgin Blue has been careful not to help them make their case, indicating its attitude towards entering the market is conditional on the terms of access and, in particular, the fate of Air NZ's discount airline, Freedom Air (which Virgin Blue would like to buy or see shut down).
Norris made it clear that Freedom's role in his business was non-negotiable, although he and Qantas have offered undertakings they claim would facilitate Virgin Blue's entry.
Unless and until Virgin Blue makes a commitment to entering the market in a meaningful fashion, the regulators will remain unconvinced that the alliance won't produce an effective monopoly in NZ and on the trans-Tasman routes and increase Qantas's dominance of the Australasia/US routes.
The dilemma for the airlines and the regulators is that they are probably both right. The alliance, in isolation, would be highly anti-competitive and threaten the interests of consumers in both jurisdictions, but without it Air NZ could be wiped out if Qantas decides to turn the competitive heat up and/or Virgin Blue entered the market.
The reconciling item, the development that would provide comfort for the regulators, is a long-term commitment from Virgin Blue to the NZ market.
Virgin Blue is far too street smart to provide that commitment in support of the alliance unless the quid pro quo is overwhelmingly attractive.
Virgin Blue doesn't have to enter the NZ market, but if it does it knows that without the alliance both Air NZ and Qantas, but Air NZ in particular, will find it more difficult to respond to its pricing strategies.
If they were to get approval, even if it weren't given the opportunity to acquire Freedom in a forced sale or see it shut down Virgin Blue would receive substantial concessions and an opportunity to build the sensibly competitive and mutually profitable relationship with them that it has with Qantas in this market.
Neither the NZ Commerce Commission nor the ACCC will want to risk their national flag carriers. They need a circuit breaker as much as Air NZ or Qantas do, although Qantas does have the option of competing Air NZ into the ground.
At this stage, however, only Virgin Blue can provide the solution that enables the alliance to proceed without the risk of material consumer detriment.
It could sit on the sidelines and wait for the conclusive rejection of the alliance and have the option of joining Qantas in the assault or waiting for the dust to settle. Or it could trade a contribution to helping to get the alliance approved for a profitable piece of a competitive duopoly.
[email protected]
=========================================
The ball is in Virgin's court
June 24 2003
There was more than a tinge of desperation in Ralph Norris's plea to competition regulators yesterday to approve the controversial alliance between Qantas and Air New Zealand. Norris, Air NZ's chief executive officer, knows the chances of the NZ Commerce Commission and Australian Competition and Consumer Commission withdrawing their opposition to the alliance are almost non-existent.
Less than a fortnight ago the NZCC revised its estimate of net detriment to consumers as a result of the alliance from its original estimate of $NZ155-$NZ402 million within three years ($A135-$A350 million) to $NZ195-$NZ466 million.
That revision was sufficient to convince most observers of the airlines that the slim hope of a clearance had vanished, despite the proposed entry of Emirates Airlines to the NZ industry and Virgin Blue's application for rights to fly to NZ - an application conditional on the nature of the regulators' final ruling.
Norris warned yesterday that, without the $400 million a year of cost savings from the alliance and the $500 million of capital from Qantas that would cement it, his airline was acutely vulnerable.
The present head-to-head competition between Air NZ and Qantas was unsustainable, he said.
If a budget airline (read Virgin Blue) were to be launched in NZ, the consequences would range from the withdrawal or failure of one airline to Air NZ being made vulnerable to full takeover or forced to rely on ongoing state support.
Norris and his team have done a remarkable job of stabilising Air NZ and improving its competitive and financial positions, given the difficult conditions within the global industry.
His dire warnings of the prospects for Air NZ if the regulators' maintain their stances could be regarded as cynical and/or alarmist.
Air NZ has, however, had a preview of what might happen in NZ if it can't secure a big brother.
Ansett was run down and ill-prepared for the fare wars that broke out when Impulse and Virgin Blue mounted their assault on the Australian domestic market and destroyed it and wounded its parent, Air NZ. Air NZ is better managed and government-controlled, but remains undercapitalised and, post-Ansett, over-reliant on a tiny domestic market.
Virgin Blue could trade a contribution to helping to get the alliance approved for a profitable piece of a competitive duopoly.
The lesson from Ansett's demise is that in a contest between two full-service airlines and a budget airline start-up, the weaker of the full-service carriers is vulnerable. If Virgin Blue launches an NZ campaign, or a credible third player emerges with a budget airline strategy, Air NZ will have no room to manoeuvre.
It would be dependent on its ability to secure open-ended access to new capital from the New Zealand taxpayer, which Wellington has said it will not provide.
Both the NZ and Australian Governments are supportive of the alliance and its potential to secure their national flag carriers' medium-term futures within a volatile and unprofitable global industry.
While Norris indicated that Air NZ and Qantas had made further submissions to the regulators, which include challenges to the economic assumptions on which the regulators have based their opposition (Air NZ says the alliance would generate $NZ189-$NZ256 million, or $A164-$A223 million, of annual net benefits) it is improbable that the airlines could prove no competitive detriment from operating in tandem within the NZ market and on the cross-Tasman routes.
Virgin Blue has been careful not to help them make their case, indicating its attitude towards entering the market is conditional on the terms of access and, in particular, the fate of Air NZ's discount airline, Freedom Air (which Virgin Blue would like to buy or see shut down).
Norris made it clear that Freedom's role in his business was non-negotiable, although he and Qantas have offered undertakings they claim would facilitate Virgin Blue's entry.
Unless and until Virgin Blue makes a commitment to entering the market in a meaningful fashion, the regulators will remain unconvinced that the alliance won't produce an effective monopoly in NZ and on the trans-Tasman routes and increase Qantas's dominance of the Australasia/US routes.
The dilemma for the airlines and the regulators is that they are probably both right. The alliance, in isolation, would be highly anti-competitive and threaten the interests of consumers in both jurisdictions, but without it Air NZ could be wiped out if Qantas decides to turn the competitive heat up and/or Virgin Blue entered the market.
The reconciling item, the development that would provide comfort for the regulators, is a long-term commitment from Virgin Blue to the NZ market.
Virgin Blue is far too street smart to provide that commitment in support of the alliance unless the quid pro quo is overwhelmingly attractive.
Virgin Blue doesn't have to enter the NZ market, but if it does it knows that without the alliance both Air NZ and Qantas, but Air NZ in particular, will find it more difficult to respond to its pricing strategies.
If they were to get approval, even if it weren't given the opportunity to acquire Freedom in a forced sale or see it shut down Virgin Blue would receive substantial concessions and an opportunity to build the sensibly competitive and mutually profitable relationship with them that it has with Qantas in this market.
Neither the NZ Commerce Commission nor the ACCC will want to risk their national flag carriers. They need a circuit breaker as much as Air NZ or Qantas do, although Qantas does have the option of competing Air NZ into the ground.
At this stage, however, only Virgin Blue can provide the solution that enables the alliance to proceed without the risk of material consumer detriment.
It could sit on the sidelines and wait for the conclusive rejection of the alliance and have the option of joining Qantas in the assault or waiting for the dust to settle. Or it could trade a contribution to helping to get the alliance approved for a profitable piece of a competitive duopoly.
[email protected]
=========================================
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Let's clarify two points from above : "Ansett was run down and ill-prepared for the fare wars that broke out when Impulse and Virgin Blue mounted their assault on the Australian domestic market and destroyed it and wounded its parent, Air NZ. Air NZ is better managed and government-controlled, but remains undercapitalised and, post-Ansett, over-reliant on a tiny domestic market." Too true, but remember that it was run down by the parent companies, one of whom was AirNZ. "If a budget airline (read Virgin Blue) were to be launched in NZ, the consequences would range from the withdrawal or failure of one airline to Air NZ being made vulnerable to full takeover or forced to rely on ongoing state support." Here, I must laugh, The NZ govt. could have saved then NZ tax payer over $800Mil. by letting SQ buy into AirNZ, but political considerations prevented this; Helen had an election to win and didn't want to be seen selling off the farm (plus,there was all that pressure from those pesky polies from Oz ;ie The Minister for Qantas and Max the Axe.). The cost to each NZ taxpayer to bail out AirNZ was about $1000 for that year alone with more funds needed. A cash injection for SQ would have created a viable AirNz, resurected Ansett and given real competition for QF. How short sighted these people are.
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Ralph,
You are to be commended. Couldn't have said it better myself. I still think little johnny may deserve a mention, however much of the credit does indeed go to the minister for QF. Still hundreds and hundreds of Australian families suffering and doing it extremely tough. ( Over 25 techie suicides) Marraige break-ups, financial ruin. I mean families who have lost everything or about to lose it....... An staff STILL have Not been paid 50% of their entitlements ..........and to top it off........... AnZ are thrown a lifeline. That's the aussie spirit.
You are to be commended. Couldn't have said it better myself. I still think little johnny may deserve a mention, however much of the credit does indeed go to the minister for QF. Still hundreds and hundreds of Australian families suffering and doing it extremely tough. ( Over 25 techie suicides) Marraige break-ups, financial ruin. I mean families who have lost everything or about to lose it....... An staff STILL have Not been paid 50% of their entitlements ..........and to top it off........... AnZ are thrown a lifeline. That's the aussie spirit.
Along with the 30 thousand children that die of malnutrition and disease every day of the year....
short flights long nights
Skyhero, and just what event and year are you refering to...........................?
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It is just amazing that the conspiracy theorists throw up all sorts of rubbish like the politicians are responsible for the downfall of Ansett.
Ansett was moribund, hopelessly inefficient and hopelessly in debt. If you had any knowledge of some of the financial information revealed by the liquidation you would be horrified.
SIA may foolishly, have got its hands on Ansett if things had been different but the result would have been the same. To have survived even temporarily, Ansett would have to have shed all its huge debt and been gutted operationally. The hard facts are that it was no longer viable.
SIA are totally ruthless and profit driven (see other threads running on this subject). They like AirNZ probably would have written it off just the same albeit a few months later.
Ansett died because of what it was or had become …… totally inefficient and incompetent financially.
Ansett rightfully, as a private company, was left to flounder just like many other once fine companies. It is very sad for the staff but no different to other private companies that went the same way. Ansett had no more right to public or taxpayer monies or some open ended guarantee of survival than any other non government owned company.
It has been replaced by another more efficient operator and who knows, in time hopefully more may emerge.
Ansett was moribund, hopelessly inefficient and hopelessly in debt. If you had any knowledge of some of the financial information revealed by the liquidation you would be horrified.
SIA may foolishly, have got its hands on Ansett if things had been different but the result would have been the same. To have survived even temporarily, Ansett would have to have shed all its huge debt and been gutted operationally. The hard facts are that it was no longer viable.
SIA are totally ruthless and profit driven (see other threads running on this subject). They like AirNZ probably would have written it off just the same albeit a few months later.
Ansett died because of what it was or had become …… totally inefficient and incompetent financially.
Ansett rightfully, as a private company, was left to flounder just like many other once fine companies. It is very sad for the staff but no different to other private companies that went the same way. Ansett had no more right to public or taxpayer monies or some open ended guarantee of survival than any other non government owned company.
It has been replaced by another more efficient operator and who knows, in time hopefully more may emerge.
Last edited by Snowballs; 25th Jun 2003 at 14:33.
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As far as I know , Ansett were flying at near capacity when it collapsed, yet they were saying it was losing 1 million a day.
A year before it was in profit.
Anderson did not send a fax, phone call or email to NZ but went over there in person to deny SA and promote Quandom.
But the Government has nothing to do with private enterprise does it?
Maybe Virgin should give back the money the government gave them to start up.
A year before it was in profit.
Anderson did not send a fax, phone call or email to NZ but went over there in person to deny SA and promote Quandom.
But the Government has nothing to do with private enterprise does it?
Maybe Virgin should give back the money the government gave them to start up.
short flights long nights
Flying at near of full capacity means nothing. What is required is to fly enough pax at a fare level that produces a PROFIT. If you fly one FC PAX who pays 2 million dollars for his seat, or 2 million pax who pay 1 dollar for their seats, it does not matter, the result is the same, and as long as you are only spending 1 million a day, then you are looking good.
The problem arises, when you have a "full capacity aircraft", that everyone has paid 5o dollars less, per seat, than what it costs you as an Airline, to provide that seat.
But, as I keep saying, in 1989, the PM, Bob Hawke, said that the new pilot contracts "were so good" and "offered so much extra productivity" "that they would allow the Airlines to make HUGE profits in the future"
Funny how not ONE of those airlines he was speaking about exisits anymore
The problem arises, when you have a "full capacity aircraft", that everyone has paid 5o dollars less, per seat, than what it costs you as an Airline, to provide that seat.
But, as I keep saying, in 1989, the PM, Bob Hawke, said that the new pilot contracts "were so good" and "offered so much extra productivity" "that they would allow the Airlines to make HUGE profits in the future"
Funny how not ONE of those airlines he was speaking about exisits anymore
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Repro,
>As far as I know , Ansett were flying at near capacity when it collapsed, yet they were >saying it was losing 1 million a day.
That is a typical Ansett pilots response. Yield management and cost structure is everything. They probably needed far in excess of “full” aircraft just to brake even. As to the previous profitable years, go talk to financial people involved. The profits were in some case illusionary and a lot to do with creative accounting, high fare structures which were no longer sustainable with competition, deferring badly needed maintenance and capital expenditure and an appalling lack of accountability and management reporting in which valuable resources / expenditure were wasted on useless or unworkable projects. A certain recipe for financial ruin. Ansett was saddled with a bloated cost structure which just about everyone in the industry knew of yet we still have to blame everyone else except the very people responsible for the mess.
Ansett died because it was a badly run financial dinosaur of a bygone era who was incapable of changing, and like the dinosaur is now extinct.
>As far as I know , Ansett were flying at near capacity when it collapsed, yet they were >saying it was losing 1 million a day.
That is a typical Ansett pilots response. Yield management and cost structure is everything. They probably needed far in excess of “full” aircraft just to brake even. As to the previous profitable years, go talk to financial people involved. The profits were in some case illusionary and a lot to do with creative accounting, high fare structures which were no longer sustainable with competition, deferring badly needed maintenance and capital expenditure and an appalling lack of accountability and management reporting in which valuable resources / expenditure were wasted on useless or unworkable projects. A certain recipe for financial ruin. Ansett was saddled with a bloated cost structure which just about everyone in the industry knew of yet we still have to blame everyone else except the very people responsible for the mess.
Ansett died because it was a badly run financial dinosaur of a bygone era who was incapable of changing, and like the dinosaur is now extinct.
Last edited by Snowballs; 26th Jun 2003 at 08:30.
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Thurs "New Zealand Herald"
Air NZ trumpets Virgin
26.06.2003
By CHRIS DANIELS aviation writer
A budget airline such as Virgin Blue will provide enough competition to keep fares cheap under any alliance deal with Qantas, says Air New Zealand.
The airline's latest plea to the Commerce Commission for permission to join forces with Qantas has been published, and rests on the prospect of Virgin Blue providing suitable competition.
The commission, as New Zealand's competition regulator, provisionally rejected the airlines' plans in April - both the Qantas request to buy 22.5 per cent of Air NZ, and a joint application from them to set up a arrangement that would fix fares, schedules and bookings to, from and within New Zealand.
Air NZ's submission, addressing the entry of a "VBA", or value-based airline, says Virgin Blue's plans are clear: it intends to use five of its Boeing 737 aircraft to fly either the Tasman or domestic New Zealand routes.
This "imminent entry" of Virgin Blue to these markets will stop the joint Air NZ-Qantas entity from putting up fares too high, says the submission.
Raising prices would be like giving a rival a "free ticket" to their market, they say.
Every successful entry of an airline such as Virgin Blue had led to a reduction in fares.
One of the biggest differences in the attitude of the commission to that of the airlines is what would happen if the alliance was not allowed to proceed - called the "counterfactual".
Air NZ and Qantas argue that a "war of attrition" would occur, with cut-throat competition in the New Zealand domestic market leading to the ultimate demise of its most profitable business.
Qantas, with deeper pockets, would keep expanding its New Zealand services, taking more and more business from Air NZ.
The commission disagreed. It said such a response from Qantas would be irrational, cost it plenty of money, and would have happened by now had it been true.
In the new submission, the two airlines clarify what they mean by this "war of attrition", saying the expected Qantas increase in capacity would cause a steady wearing down of Air New Zealand.
The commission's use of former Air New Zealand executives as advisers came in for some thinly veiled criticism by the two airlines in their latest submission.
It says the commission appeared to have preferred the views of former directors and managers who did not have access to current information.
* Interested parties have until Friday, July 18, to make cross submissions on the latest analysis submitted by Air New Zealand and Qantas.
The Commerce Commission will then hold a public conference in mid-August.
It expects to make its final decision on the applications by the end of September.
=========================================
Air NZ trumpets Virgin
26.06.2003
By CHRIS DANIELS aviation writer
A budget airline such as Virgin Blue will provide enough competition to keep fares cheap under any alliance deal with Qantas, says Air New Zealand.
The airline's latest plea to the Commerce Commission for permission to join forces with Qantas has been published, and rests on the prospect of Virgin Blue providing suitable competition.
The commission, as New Zealand's competition regulator, provisionally rejected the airlines' plans in April - both the Qantas request to buy 22.5 per cent of Air NZ, and a joint application from them to set up a arrangement that would fix fares, schedules and bookings to, from and within New Zealand.
Air NZ's submission, addressing the entry of a "VBA", or value-based airline, says Virgin Blue's plans are clear: it intends to use five of its Boeing 737 aircraft to fly either the Tasman or domestic New Zealand routes.
This "imminent entry" of Virgin Blue to these markets will stop the joint Air NZ-Qantas entity from putting up fares too high, says the submission.
Raising prices would be like giving a rival a "free ticket" to their market, they say.
Every successful entry of an airline such as Virgin Blue had led to a reduction in fares.
One of the biggest differences in the attitude of the commission to that of the airlines is what would happen if the alliance was not allowed to proceed - called the "counterfactual".
Air NZ and Qantas argue that a "war of attrition" would occur, with cut-throat competition in the New Zealand domestic market leading to the ultimate demise of its most profitable business.
Qantas, with deeper pockets, would keep expanding its New Zealand services, taking more and more business from Air NZ.
The commission disagreed. It said such a response from Qantas would be irrational, cost it plenty of money, and would have happened by now had it been true.
In the new submission, the two airlines clarify what they mean by this "war of attrition", saying the expected Qantas increase in capacity would cause a steady wearing down of Air New Zealand.
The commission's use of former Air New Zealand executives as advisers came in for some thinly veiled criticism by the two airlines in their latest submission.
It says the commission appeared to have preferred the views of former directors and managers who did not have access to current information.
* Interested parties have until Friday, July 18, to make cross submissions on the latest analysis submitted by Air New Zealand and Qantas.
The Commerce Commission will then hold a public conference in mid-August.
It expects to make its final decision on the applications by the end of September.
=========================================
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I thought Virgin supported competition, keeping the air fair etc.
Why would they require Freedom Air to be bought out or closed down before they entered the market when Freedom is the obvious source of competition for their low cost no frills approach.
Doesn't really sound like competion at all?
Why would they require Freedom Air to be bought out or closed down before they entered the market when Freedom is the obvious source of competition for their low cost no frills approach.
Doesn't really sound like competion at all?
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Virgin do support competition but not suicide.
Three against one aren't very good odds. They're not stupid especially when one of them is the same model as them.
As they have said divest Freedom and the alliance is okay then it's one against one.
Three against one aren't very good odds. They're not stupid especially when one of them is the same model as them.
As they have said divest Freedom and the alliance is okay then it's one against one.
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Everybody is reported to be the lowest paid 737 drivers in the world!
The pacific island airlines pay significantly less than freedom, and the russian airlines pay per month what a freedom bloke would earn in a day.
The pacific island airlines pay significantly less than freedom, and the russian airlines pay per month what a freedom bloke would earn in a day.
