Air NZ considers legal options against Qantas

12.00 pm

Air New Zealand chief executive Ralph Norris has accused Qantas of using profits from the Australian market to subsidise its New Zealand operations and confirmed that Air New Zealand is considering legal options.

"Qantas is putting pressure on us, both in this market and across the Tasman, and there's no doubt their pricing strategies are all about putting us in the vice," Mr Norris said in an interview in The Australian today.

"Qantas is discounting heavily in this market, obviously using the profits they're gaining out of the Australian market to subsidise losses they're willing to take in this market."

But Qantas vehemently denies Air NZ's assertion that its behaviour is predatory.

"I can assure you we're not in business to drive anybody out of business," its executive general manager of sales and marketing, John Borghetti was quoted as saying. "We're too busy minding our own business and making sure we're profitable. We're only a 20 per cent player in New Zealand. That's a very small percentage of the total market."

Mr Borghetti refuses to say whether Qantas is losing money in New Zealand but JB Were aviation analyst Peter Sigley said it was.

"Whether it's initially targeted at building a sustainable business or an attack on Air NZ's profitability, it's hard to tell," he said.

Ian Thomas at aviation consultancy, Centre for Asia Pacific Aviation, said Qantas is aiming to squeeze Air NZ and force the Government to sell it a cornerstone stake in the devalued airline.

Mr Norris said he was working on a strategy to counter the Australian airline -- "a total review of the way we're undertaking business and how we'll be undertaking business in the future".

Air NZ is expected to clean out all remaining skeletons when it reports its result on Thursday.

"It'll be a big clean-out result," ABN Amro head of research Malcolm Davie told NZPA.

Macquarie Equities analyst Arthur Lim agreed.

"They will take the opportunity to write off every conceivable thing."

D-day is Thursday, with analysts predicting the airline -- which posted a record $1.4 billion annual loss in September following the writedown of its Ansett investment -- will have lost around $100 million in the six months to December 31. That compares with a $3.8 million profit in the same period a year earlier.

Mr Davie said estimating the size of the loss was "very much a lottery", given the volatility of the international aviation sector over the last six months.

"But I have no doubt it will be a negative figure," he said.

"With any unwinding process as we saw with the demise of Ansett, there will be costs in addition to what has been indicated at this stage."

Despite another certain loss looming, analysts are upbeat about the airline's prospects.

UBS Warburg's Asia-Pacific airline analyst Timothy Ross said improved growth prospects, low interest rates, falling fuel costs and a dampening of the terrorist threat made the world a "happier place" for airlines this year.

UBS has forecast a half-year loss of $98 million before unusual items and has a "buy" rating on Air NZ shares, which today were unchanged at 34 cents.

Mr Davie is cautiously optimistic about the airline's prospects.

"The international aviation sector has certainly stabilised and we have seen that in terms of passenger numbers at a variety of international airlines, but things are still very vulnerable."

He said Air NZ would likely face at least another two years of tough trading before returning to profit.

The collapse last week of a deal by businessmen Solomon Lew and Lindsay Fox to buy Ansett was a big blow, Mr Davie said, and a sign of further volatility to come in the Australasian aviation sector.

It leaves Air NZ without a feeder airline for its trans-Tasman passengers and its most likely replacement partner, Virgin Blue, may play hard to get, Mr Davie said.

"As we've seen in the past, Virgin Blue's been a particularly tricky customer to negotiate with. They're pretty unpredictable."

Meanwhile, Air NZ has raised the ire of Canterbury exporters by announcing it will pull its Singapore service out of Christchurch from May 5 and instead will fly a daily service out of Auckland.

That move may see Air NZ lose its southern custom to Singapore Airlines (SIA). Freight industry sources suggest SIA may expand its Christchurch run from three to four flights a week to cope with the added demand.

- NZPA