Fare battles tipped with Ansett Australia sale

MELBOURNE - Airline price wars are predicted after Ansett Australia's creditors approved a $A3.5 billion ($4.32 billion) revival plan.

Creditors agreed on Tuesday to sell Ansett to the Tesna consortium, led by Melbourne trucking entrepreneur Lindsay Fox and clothing magnate Solomon Lew, who offered to pay $A270 million cash, assume liabilities of up to $A244 million for staff entitlements, and buy 29 new Airbus jets for about $A3 billion.

Ansett's administrators estimated that potential unsecured creditors, owed almost $A2 billion, would receive up to 5Ac in the dollar if the sale went ahead.

They said Tesna believed Ansett's 2.6 million angry frequent flyer holders, who have 67 billion points, would be "very, very happy" with the plans for a new loyalty scheme .

The administrators had hoped to clear the sale today but told creditors it would take up to 30 days more to settle because it was so complex and included the transfer of Ansett's Sydney airport terminal and signatures from aircraft lessors.

Starting with a market share of about 5 per cent, down from 40 per cent since it was abandoned in September by Air New Zealand, the new Ansett is expected to slash ticket prices to lure back customers from Qantas and no-frills Virgin Blue

"I think we're in for a reasonably aggressive price war," said ABN Amro aviation analyst Bruce Low.

"The fact you've got a lot more capacity coming into the market means you either have to stimulate demand through discounting or load factors are going to fall off, so discounting is inevitable."

Fox and Lew forecast Ansett would lose about $A120 million in the first year and break even in the second year, administrator Mark Mentha said.

The new Ansett will start with business and economy-class services on eight routes with a fleet of 16 Airbus A320s, compared with Ansett's original fleet of 133 planes.

New routes will be added as 14 additional aircraft are delivered through the first half of 2002.

About 4000 of the airline's original 16,000 staff have been retained.

While analysts expect Qantas to lose business to a revived Ansett, they do not expect it to suffer too much.

"Qantas is in a very strong position, with a better capitalised fleet," said Macquarie Equities analyst Ian Myles.

There is no room for more than two players in the domestic market, analysts say, and in the extreme case some say Qantas could end up being the only airline left if Ansett and Virgin Blue cannibalise each other.

- REUTERS

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