Air New Zealand looks at Australian domestic routes

Air New Zealand is looking at starting limited domestic flights on Australia's busy east coast routes to fill the void left by Ansett, according to Australian media reports.

Speaking after a meeting of the Star Alliance network, Air NZ chief executive Ralph Norris told the Sydney Morning Herald that the launch of a third domestic airline in Australia was one of several options being developed to fill "the hole" left by Ansett and help boost feeder traffic to members of the Star Alliance.

"Air NZ has been looking at its options, particularly on the east coast of Australia, but we haven't taken any decisions as yet in this regard," Mr Norris said.

Mr Norris said at this point the idea didn't have much traction in the alliance, but he wouldn't rule any options out.

Ansett collapsed in September last year, nearly dragging parent airline Air NZ with it. Air NZ was saved by an $892 million government bailout, but without Ansett it has lost its link into the lucrative Australian domestic market.

Following the Ansett collapse, some Star Alliance members controversially declined to honour many frequent flyer trips, the SMH reported.

Passengers on United, Air NZ, Thai and Singapore Airlines have been unable to redeem loyalty points in Australia.

Bookings for domestic travel are also difficult. There are no lounge facilities, and flight connections are cumbersome.

On some routes, including Adelaide and Canberra, Air NZ's feeder traffic has dropped by 25 per cent, the paper reported.

Other Star Alliance carriers have been experiencing healthy loads, but the lack of an Australian partner is a long-term concern.

Because of the deregulated trans-Tasman aviation market, Air NZ can start domestic services in Australia with few restrictions.

Speculation emerged last week that Air NZ might look to rival airline Qantas to provide its Australian domestic feeder traffic, but that option seems unlikely given that Qantas belongs to the rival OneWorld airline alliance.

The pair also confirmed they had held talks on Qantas taking an equity stake in Air NZ, but nothing had been decided as yet.

Meanwhile, the Dominion reported yesterday Air NZ will seek to raise $189 million through a rights issue later this year, including $150 million from the Government.

The newspaper reported that Mr Norris, in Shanghai for an air industry conference, said the rights issue appeared to have the support of shareholders.

The Government owns 82 per cent of Air NZ following last year's bailout, Singapore Airlines owns 4.5 per cent, BIL International Ltd 5.5 per cent and the remaining shares are owned by mainly retail investors.

The Government has already pledged $150 million to the rights issue, leaving $39 million to be raised from other shareholders.

Shares in Air NZ last traded on Friday at 71 cents, against a low of 16 cents following the Ansett collapse in September last year.

- NZPA