Airline bridges credibility gap

By DANIEL RIORDAN

Tasman Pacific - the renamed Ansett New Zealand - appears to have won itself instant market credibility with its decision to fly the domestic skies under the Qantas New Zealand banner.

Among those to welcome the franchise deal with Qantas were Tourism Industry Association chief executive Glenys Coughlan, who said the flow of tourists to the regions would improve with the seamless travel offered under the new airline agreement.

Consumers' Institute chief executive David Russell said the deal was good news for local airline passengers because it strengthened the ailing No 2 domestic airline.

While it is unlikely to result in cheaper airfares - Tasman Pacific chairman Ken Cowley said prices were already rock-bottom - it removes any threat of the second airline going under and leaving Air New Zealand with the market to itself.

Salomon Smith Barney's Sydney-based airline analyst, Jason Smith, said the deal was a logical step for Qantas, which was looking to strengthen its Australasian presence.

It provides Tasman Pacific with arguably one of the strongest brand names in the world and boosts Qantas' Australasian presence.

Another Australian analyst, who asked not to be named, said the deal was largely about alliances.

Qantas NZ enters the One World global alliance with Qantas and British Airways, meeting the challenge in this part of the world of the Star Alliance threesome of Air New Zealand, Ansett Australia and Singapore Airlines.

Cavill White Securities research head John Cairns said the deal made the environment a little more challenging for Air New Zealand, but there was no surprise in the announcement.

"Knowing the calibre of investors in Ansett NZ, it would have been most unlikely they'd have gone down any other route."

Air New Zealand's share price barely flickered at Monday's news.

Of more immediate concern to analysts is the ease with which Air New Zealand will be able to integrate its newly acquired subsidiary Ansett Holdings into its operations, and how quickly it will be able to realise synergies from the purchase.

Air New Zealand chairman Sir Selwyn Cushing has said he is comfortable with recent downgrades in analysts' profit forecasts that put annual profit at $170 million, compared with the airline's $214 million profit for the year to June 1999.

Higher fuel costs are also behind the downgrades.

Skeggs Group managing director David Skeggs, a Tasman Pacific director, said Tasman Pacific fitted the investment criteria for the family-owned investment company, which had been involved with the airline industry in the past.

That the consortium was predominantly made up of New Zealanders played a part in the decision, and Qantas' involvement was crucial, he said.

Skeggs intends being a long-term investor.

The consortium started negotiations with Qantas looking just for code-sharing and lounge access arrangements.

David Belcher, the merchant banker who put the deal together and took a stake in the company, said he was prepared initially for more modest arrangements than the franchise agreement eventually settled upon.

The consortium had faced testing times as Qantas competed with Singapore Airlines to grab a stake in Air New Zealand - a fight Singapore won.

That freed Qantas to continue negotiations with Ansett NZ.

At this stage, Qantas will not be putting a representative on Tasman Pacific's board.

Mr Cowley said Qantas had not asked and his board had not considered it. The option of floating the airline had also not been discussed.

Ansett NZ lost money in all but a handful of its 13 years of operation, and will post another loss for the year to June 30, reflecting in part last September's pilot strikes.

The new-look airline hopes at least to break even for the year to June 2001, taking advantage of Qantas' greater market clout, better leasing deals on its planes and lower costs negotiated since the new owners took over in March.