Beaten pair change tack

By CHRIS DANIELS

Qantas and Air New Zealand are looking for new ways to co-operate without provoking regulators after the High Court killed their dreams of an alliance.

After two years of wrangling and a $20 million bill for lawyers and other advisers, the High Court largely upheld the Commerce Commission's ruling that the alliance would leave consumers worse off.

Air NZ chief executive Ralph Norris said the airline had won some points in its appeal, but had no appetite for more legal action.

"I think that from our perspective, at this point, the alliance in the form that it was proposed is now dead," he said.

"We need to look at ways and means of getting some collaborative benefits that don't conflict with the regulators."

Qantas boss Geoff Dixon was unequivocal, saying it was now time to move on.

Both airline chiefs said the decision by Justice Rodney Hansen and lay specialist Kerrin Vautier defied a move towards alliances around the world.

They cited airline tie-ups in Europe, including the recent merger between KLM and Air France.

Under the plan, devised after Air NZ's near bankruptcy and subsequent $885 million Government bailout, the two airlines would have shared services to, from and within New Zealand.

Qantas would have also paid $550 million for a 22.5 per cent stake in its smaller rival.

Norris said a good rapport with Qantas had developed over the last couple of years, though the two airlines were still "tough competitors".

Having a common "parts pool" for new Airbus A320 aircraft was an example of co-operation that could happen without needing approval.

"The cost of carrying inventory and treating the two fleets individually is quite significant."

He could not rule out the possibility of a new application to regulators for an alliance, but this was unlikely in the next one to two years.

"We've been talking about the possibilities of co-operating in a number of areas, and we really haven't got that hammered down at this point.

"Geoff [Dixon]and I are going to have a meeting later on in the week and try to get some focus into that process."

Other possibilities include Qantas leaving the oneworld alliance and joining Air New Zealand in the Star Alliance, observers say.

British Airways recently sold its 18.25 per cent shareholding in Qantas.

The Star Alliance, which has Singapore Airlines, Air NZ and United as members, would welcome Qantas. Such alliances were created in the late 1990s after competition regulators rejected airline merger plans.

Qantas has recently been making inroads into the Asian market, helping set up a low-cost airline in Singapore, which has attracted investment from the Singaporean Government.

Norris said: "Over time, people will come to see that an arrangement between Qantas and Air New Zealand is not something that is going to be to the consumer's detriment."

Norris said the board and management had built a "robust platform" that would allow Air NZ to continue growing in the short to medium term.

"While we are cautiously confident that initiatives in train over this period will provide for the long term," he said, "given the inherent volatility and intense competition in this industry, this will be a considerable challenge."

The story so far

December 2002: Air NZ and Qantas apply for permission to form an "alliance" - where Qantas buys up to 22.5 per cent of Air NZ shares for $550 million. Together they would fix prices and co-ordinate schedules on all their flights to, from and within New Zealand. Profits from these flights would be shared.

September 2003: Australian Competition and Consumer Commission rejects the Qantas application, saying it is anti-competitive and of no benefit to consumers.

October 2003: The New Zealand Commerce Commission rejects the airlines' application, saying fares could increase up to 24 per cent on domestic routes and 22 per cent on the Tasman.

May 2004: Qantas appeals the ACCC rejection to the Australian Competition Tribunal. Its decision is pending.

July 2004: Air NZ appeals against the commission's decision to the High Court at Auckland.

September 2004: High Court endorses the commission, rejecting the Air NZ appeal.