Between the lines: Qantas scheme requires huge leap of faith

By DANIEL RIORDAN

Singapore Airlines' proposal for a bigger stake in Air New Zealand lost ground this week, but it remains the best option for our national carrier, pending more information from rival suitor Qantas.

The Australian Government has hoisted its colours to the mast - a big kangaroo - and although the NZ Government continues to maintain public neutrality, its body language has it sidling closer to Qantas.

A decision on whether it will appease the Air New Zealand board and raise the foreign airline ownership cap, allowing Singapore to move from 25 per cent to 49 per cent, is expected this month.

Qantas proposes buying Singapore's 25 per cent stake, selling Ansett to Singapore, buying Brierley Investments' 30 per cent share and offloading that to various investors.

Ansett would fly the Tasman and within New Zealand, to ensure competition.

The Government has identified three key issues in any decision: air rights, tourism and competition.

On the first two, there seems little to choose between the suitors. But on the third, accepting the Qantas proposal will require a huge leap of faith from politicians and regulators.

Tourism

Qantas says Air New Zealand's independence or its existence as a separate brand will not be threatened.

Lifting the financial burden of Ansett from Air NZ's shoulders would allow it to devote more resources to expansion, Qantas says.

The Australian carrier stresses that it already has an agreement with Tourism NZ to promote New Zealand in key overseas markets, and works closely with local tourism groups.

Singapore says it has no interest in diluting the Air NZ brand.

The Tourism Industry Association and the Travel Agents Association, which have relationships with Air NZ and Singapore, are remaining neutral on the issue.

But, like the Government, their aim is for a strong Air NZ that is a major force in the Asia-Pacific region and on long-haul routes to the US and Europe.

This is where Qantas' proposal has raised concerns. It may allow Air NZ to ply the same routes it does - the Government is hardly likely to approve the proposal otherwise - but will it encourage Air NZ to expand in the same way?

If Qantas wins, Air NZ would also have to leave the Star Alliance, incurring a $60 million exit fee and severing ties with members which have fuelled its own tourism growth.

Air rights

Qantas would take a 25 per cent stake, leaving Air New Zealand's air rights unaffected.

Singapore's proposed 49 per cent stake could be problematic, but again it seems highly unlikely that any air rights would be jeopardised.

Britain, France, Japan and Fiji can withdraw landing rights to Air NZ if its ownership changes significantly.

But Japan allows Ansett International, 49 per cent owned by Air NZ, to fly there, the trend in Europe is to more open skies, and it is clearly in Fiji's interests to attract as many overseas airlines as it can.

Several airlines are 49 per cent owned by foreign carriers, Belgium's Sabena, Air Egypt, Lan Peru and Air Estonia among them. Closer to home, Air Pacific is 46 per cent owned by Qantas.

Competition

Singapore's proposal does not alter the status quo. In New Zealand, Qantas and Air NZ will continue to go head to head; in Australia, a stronger Ansett will provide a politically-pleasing sterner test for Qantas; on Tasman routes Air NZ and Qantas will continue to battle it out.

But the Qantas proposal raises big questions.

The Commerce Commission has met Qantas informally but with no definite proposal before it, has yet to form a view.

The Australian Competition and Consumer Commissioner, Ross Jones, says his concerns about the Qantas proposal relate chiefly to competition across the Tasman and parts of the South Pacific.

Qantas chief executive Geoff Dixon is confident the airline can allay these concerns, and will do so when it provides more details of its plans.

Presumably, these involve some assurance on Singapore's part that it will fly Ansett across the Tasman and within New Zealand.

Among other groups who will be affected:

Air NZ shareholders

The severing of Ansett will have short-term financial benefits for the core Air NZ. But longer-term, argues Air NZ, the move kills its chances of becoming a healthy, regionally significant player.

Air NZ/Ansett management and staff

The exit of Singapore from the share register would devastate morale, as would embracing bitter rival Qantas.

Airline unions want to see competition maintained.

Qantas sees "cooperation benefits" to Air NZ of $150 million a year, and Mr Dixon has warned that an Air NZ/Ansett/Singapore alliance would be a "behemoth" too powerful for the region's good.

The Australian Government supports that view, but cynics point to an existing behemoth of Qantas and 25 per cent owner British Airways.

The biggest stumbling block to Qantas remains Singapore's insistence that it will not sell its Air NZ stake. Chief executive Dr Cheong Choong Kong went out of his way last week to emphasise that his company has no interest in owning Ansett.

He told the Business Herald that none of the options the Air NZ board had up its sleeve involved Singapore selling its stake.

"We were buying into an Air NZ/Ansett combination for strategic reasons ... Air NZ selling Ansett doesn't make sense."

The Qantas camp dismisses Dr Cheong's remarks as posturing, but the Singaporean resolve may prove tougher than Qantas and the NZ Government estimate.

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