Airlines eye other alliance options

By CHRIS DANIELS aviation writer

As Air New Zealand and Qantas steel themselves for the expected final rejection of their alliance plan from competition regulators, attention is turning to a possible "Plan B", with an "alliance lite" now looking an option.

With no potential suitors waiting to step in to rescue Air NZ, an alliance with Qantas is the only tie-up possible, says the airline.

Speaking at a Commerce Commission conference in Wellington this month, chief executive Ralph Norris described previous attempts by Air New Zealand to seek some salvation from the looming competitive threat posed by Qantas.

He said there had been talks with Virgin Blue about the possibility of an alliance, as a possible alternative to joining forces with Qantas, but these failed.

Singapore Airlines was also approached with the idea of forming an alliance, said Norris, but it was not interested, especially after the collapse of Air New Zealand's Ansett. Norris told the Business Herald that the point had not yet been reached where the two airlines needed to try to work out a new form of alliance, one that may get past competition regulators.

"We've come across a comma, not a full stop," he said, referring to the Australian Competition and Consumer Commission's rejection of the alliance plan this week.

Airline analyst Bruce McKay, head of Saffron Capital, said the current "Plan B" was to appeal the regulators' rejections.

But the airlines were still faced with a compelling economic rationale to become joined at the hip.

"I think what they may do for another Plan B is ways of structuring their operations so that they do capture some of those benefits rather than stare each other down in every aspect."

McKay said this had happened in the past, with co-operation when Qantas previously owned a stake of less than 20 per cent. "There could be an argument to say that they'll invest less, maybe take a 19.9 per cent stake that did not require shareholder approval.

"Back-office co-operation on things like insurance and fuel buying could happen - things that would help the airlines but not impact the competitive environment."

Engineering also had scope for co-operation. McKay said one of the airlines could service the Boeing aircraft, with the other doing the Airbus planes.

Prospects for capital raising through a rights issue were probably fairly good, but would depend on the price asked. Air NZ had paid off some debt and its gearing was now down to 65 per cent.