Air NZ keeps lawyers on standby

By CATHY ARONSON transport reporter

Air New Zealand will wait to see if Qantas keeps its meals and business class on domestic routes before pursuing claims of predatory pricing.

As talks continue for Qantas to buy a 25 per cent stake in Air New Zealand, the Australian airline matched Air New Zealand's new cheap fares on main domestic routes from November 1.

An aviation analyst said Air New Zealand had painted itself into a corner with little room to manoeuvre.

Air New Zealand claimed it had to slash meals, business class and travel agent commission to make the low fare viable, but Qantas is still offering the services, although they are under review.

Qantas will not disclose how much it has lost trying to set up since last year, but estimates are as high as $80 million.

Qantas reported yesterday that its June year net profit rose to A$428.0 million ($496 million) from A$415.4 million a year earlier.

In March, Air New Zealand chief executive Ralph Norris accused Qantas of using its Australian profits to discount in New Zealand and said he was exploring legal remedies.

After Qantas lowered its fares further on Monday, Air New Zealand would say only that it was still considering legal options.

Spokesman Mark Champion said Air New Zealand was waiting to see if Qantas kept its meals and business class.

"We are keeping a watching brief on that, and yesterday's moves will also be of interest in that respect."

Commerce Commission business competition director Geoff Thorn said predatory pricing was when a market power took advantage of its position to restrict or eliminate a competitor.

"People enter markets and have low prices to attract market share to get themselves established - you can't just make an assumption that prices are coming down because someone wants to hurt another competitor."

Qantas New Zealand general manager Peter Collins said Qantas had a smaller percentage of the market, estimated at 22 per cent, and was matching the fares of the dominant force in the market, Air NewZealand.

"We are committed to New Zealand."

It has applied for a New Zealand operating licence, advertised more jobs and is adding three new Boeing 737s to increase its service.

Aviation analyst Ian Thomas said the new fares would apply pressure on the negotiations.

"In the end Air New Zealand has to decide if it can afford to lose money and compete against Qantas in the domestic market ... It's hard to see where Air New Zealand [can] go. In a sense they've painted themselves into a corner."

Qantas' new fares overshadowed Air New Zealand's announcement of new airpoints yesterday.

It says the changes will give travellers more points for fewer flights.

Air New Zealand replaced its four-level redemption scheme for a flat cost of 20,000 points for return journeys from November 1, but will pay for less travel for some passengers.

Only 15,000 points are now needed for a return flight between Wellington and Auckland. From November 1 it will be 20,000.

But passengers will get more points, a minimum of 2000 on return trips, compared with the present 960 points for Wellington to Auckland.