Airline meeting misses action

By CHRIS DANIELS aviation writer

Air New Zealand's annual shareholder meeting would have been a very different affair had it been held just 24 hours later.

At 2pm today, the airline will be told by the Commerce Commission whether it will be given permission to join forces with its erstwhile bitter rival, Qantas.

The looming judgment hung over yesterday's shareholder meeting at Auckland's Ellerslie racecourse, where several hundred people turned out to hear chairman John Palmer and chief executive Ralph Norris report on the airline's progress and prospects.

Despite the importance of today's announcement, Norris appeared relaxed at the meeting, telling shareholders he expected profits for the year to be the same as, or slightly higher than the most recent $220 million profit.

Shareholders were quiet, with few questions asked of directors or senior executives. A proposal to reward Norris share options as part of his remuneration passed with only a few queries.

But neither he nor Palmer would comment on prospects for today's Commerce Commission verdict, or on what might happen should their application be rejected.

The commission was originally going to deliver its decision more than a month ago, but it delayed this until today, 11 months after Air NZ and Qantas announced their intention to form an alliance.

It has already been resoundingly defeated by the commission's Australian counterpart , the ACCC, and is now before the federal Competition Tribunal, a body that has the power to overturn the decision.

A rejection by the Commerce Commission is more of a dead end because an appeal to the High Court would be the airlines' next step.

This would have to be made on a matter of law, such as whether the commission properly went about deciding the application.

The High Court would not be interested in hearing the arguments for or against the alliance proceeding.

So if, as many expect, the deal is rejected by the commission, the two airlines will face the prospect of either watering down their alliance plan and re-applying for permission, or abandoning the idea entirely.

Since they first applied for permission to join forces, the competitive environment in New Zealand aviation has changed considerably.

Dubai-based Emirates has become the number three carrier by capacity across the Tasman and has hinted at more expansion in the New Zealand-Australia market.

The effect of an entry by budget carrier Virgin Blue, which was widely tipped to have a significant impact on Air NZ and Qantas, has been far less than anticipated.

Virgin, flying in New Zealand under the name Pacific Blue, is launching only a very limited service in February next year, flying between Christchurch and Brisbane.

A successful alliance for Air NZ and Qantas could change its plans, though, because the two have promised to help Pacific Blue get established in the local domestic market should their deal be approved.

Norris yesterday said that consolidation of the world's airlines was an inevitable consequence of increased competition.

"It may take five years, or it may take 15 years, but I have no doubt that we will see the emergence of a small number of global mega-carriers dominating the 'big end' of the global aviation industry."

Air NZ was not going to be one of these carriers, said Norris, but nor would it be "swallowed up as part of one of them".

Instead, it would fill the niche of a regional, independent carrier. Operating beyond the main global population centres, these airlines would have strong local market positions and fly routes that matched the "key passenger flows into and out of their home markets".

Air NZ has not sat still during the regulatory process. In April, when the commission issued a resounding initial rejection of its alliance plan, the airline set up a wide-ranging strategic review of its operations with the aim of cutting duplication and costs.

This will yield cost savings of $245 million a year and cut 10 per cent of the Air NZ workforce.

Norris said forward bookings on the new Tasman Express low-cost, low-fare service were up 20 per cent. Tasman Express begins next week.