Air NZ fights for its Freedom

By CHRIS DANIELS

From a pulpit built on strong growth and good profits, Air New Zealand has begun preaching the importance of its low-cost subsidiary, Freedom Air.

Potential rival Virgin Blue says the weapon of Freedom Air must be removed from Air New Zealand's arsenal before it is allowed to join forces with Australian rival Qantas.

Chairman John Palmer and chief executive Ralph Norris yesterday stressed the "integral" nature of the Freedom brand within Air New Zealand as they reported a healthy half-year profit of $94 million, up $469 million from the same period the year before.

The airline's Express Class low-fare, low-cost domestic service had been a great success, said Palmer.

Cheap fuel and the high New Zealand dollar were also important.

Details of the extension of the "express" model to transtasman services were also revealed.

The new Airbus A320 aircraft for this service will have business class seats, unlike their domestic counterparts.

Palmer said Air New Zealand was an integrated company, and Freedom Air was an important part of the range of services offered.

"Our full service airline, combined with Air New Zealand's Express Class concept and Freedom Air provide us with that range.

"Each element is integral to the overall offering. Remove any one of these elements and you skew the new Air New Zealand model."

Without Freedom, customers would "not be offered the right to decide which service is right for them".

"The combination of the alliance, Air New Zealand Express Class and Freedom Air are critical to Air New Zealand having a successful future.

"With all three we will remain competitive domestically, across the Tasman and on chosen international routes."

Without an alliance with Qantas, the express service, and Freedom, the future for the airline was "at best as a downsized domestic airline".

Norris dismissed the call from Australian low-cost carrier Virgin Blue for the forced divestment of Freedom as a condition of regulatory approval for its Qantas alliance.

"Freedom is a very cost-effective operation, and probably has a lower cost base than Virgin," he said.

"I can understand why Virgin is probably very keen to see Freedom taken out of the market to make it easier for them to compete in that particular market segment."

Norris said it appeared Virgin Blue was asking competition regulators to give it monopoly protection for an entire market segment.

Virgin Blue's commercial head David Huttner had a dry response to Norris' comments.

"We're fascinated by Mr Norris' new-found enthusiasm for Freedom.

"We look forward to seeing the revised submission to the NZCC [the Commerce Commission] highlighting this point, since their initial submission failed to even mention Freedom as being critical to their strategy."

Air New Zealand does not break out Freedom's contribution to profits in its accounts.



Looking at financial forecasts for the whole Air New Zealand group, Norris said forward bookings were relatively good, despite fears of war in Iraq.



The company is still forecasting a full-year net profit before unusuals and tax of $230 million.

And it is still investigating a rights issue, probably in the first half of this year, with the aim of raising around $200 million.