Dialogue: Air NZ and Qantas make a perfect fit

By GEOFF DIXON*

There are few countries in the world that enjoy the long-standing rivalries of New Zealand and Australia, on and off the field. Rare is the contest that matches a transtasman challenge. We both treasure our national icons.

Over the past 100 years, we've also faced many challenges together. Now, I think, it's time that we extend this to the airline business. Rather than compete head-to-head, why not work together shoulder-to-shoulder?

It's no secret that two of the world's best and most recognised icons in the airline world are Air New Zealand and Qantas. Commitments to quality of service and technical excellence are the common ingredient. Together we employ the best people in the business.

As our businesses across both economies have become integrated under the Closer Economic Relations treaty, the wider world is changing under the drivers of globalisation. The airline industry is not immune.

Across the Americas, Europe and Asia, carriers are combining to form huge groups with immense market power. Not all of these are based in the private sector. Some enjoy the backing of their governments shielded from the usual pressures of the marketplace and stock market. Our playing field is far from level.

The question is how can we in the south and west Pacific plan ahead for the new forces of competition sweeping the globe? We are talking about the survival of national airlines, dedicated to serving the region and directed by people whose primary interest is New Zealand-Australia.

Above all, we want to maintain our airlines as distinctive, separate entities in this new and formidable environment. How best can we keep the Koru and Kangaroo - two powerful symbols of our national airlines? We think the best way ahead is side-by-side.

That's why we have proposed a new partnership with Air New Zealand. This will see both airlines working closely together to confront the new challenges. It will deliver substantial benefits to both airlines and both sets of shareholders. We think it provides the best model for aviation in the region.

We are offering an alternative approach for Air New Zealand: one with unencumbered growth and expansion - more flying, more opportunities. Our vision is based on a powerful partnership based solidly in the region, where Air New Zealand can concentrate on its own development, supported by the domestic markets of each country.

Air New Zealand and Qantas will remain separate airlines. Why throw away the world's best-known airline brands?

We would like to acquire 25 per cent of Air New Zealand to become the cornerstone shareholder. This will provide a new pathway for Air New Zealand, ensuring it remains independently New Zealand-owned and controlled with its own distinctive identity, vigorously promoting NZ in world markets.

Through cooperation with Qantas, Air New Zealand will be able to build on the impressive growth rate in the New Zealand tourist industry. This is important for regional New Zealand in terms of economic benefits, including employment.

A partnership would deliver benefits of scale for both airlines to compete more effectively in an increasingly competitive global industry. We have already identified cooperation benefits of $150 million per annum to Air New Zealand.

Something that has been lost in the present debate has been the future of Air New Zealand itself as an effective national flag carrier. By divesting its interest in Ansett Australia, the financial burden of reconstructing that airline would be removed. This would release resources to expand the core Air New Zealand.

Air New Zealand would thus be well placed to take advantage of exciting growth opportunities within the region and further afield, and to expand and push its brand into new markets.

Importantly, our proposal requires no change to the New Zealand Government's 25 per cent limit on a single foreign airline investing in Air New Zealand. In other words, we are offering a commercial solution, one that does not require any Government decision on ownership policy.

Air New Zealand's ability to use New Zealand air traffic rights will not be affected.

I want to stress as much as I can that under our proposal, the independence of Air New Zealand will be guaranteed through a range of measures.

There will be a majority of New Zealand nationals on the board. The chairman will remain a New Zealander. Air New Zealand's headquarters and principal hub will be Auckland. The company will remain listed on the New Zealand Stock Exchange.

If the partnership proves possible, I will recommend to my fellow Qantas directors that we invite the chairman of Air NZ to fill a current vacancy on the Qantas board.

Our partnership would also enhance Qantas' long-term involvement with, and continuing commitment to, the New Zealand tourism industry.

Last year, we renewed our cooperative global marketing agreement with Tourism New Zealand to promote New Zealand in key overseas markets. The new agreement will extend the relationship between Qantas and Tourism New Zealand until 2003, with a focus on inbound marketing and trade promotion as well as international media visits.

Qantas already works closely with the Tourism Industry Association, New Zealand Convention Association, Inbound Tour Operators Council, and Education New Zealand.

Working together through our proposed partnership, Qantas and Air New Zealand would devise joint strategies for market development and provide more effective and increased firepower in support of the tourism industry in both countries.

A Qantas-Air New Zealand partnership makes sense because we face similar pressures.

The global aviation industry is extremely competitive, with airlines around the world operating on very thin margins. According to the International Air Transport Association, overall industry profits are expected to average a mere 1.1 per cent of revenues last year and this year.

Like it or not, consolidation is inexorable. Our particular region is characterised by uneven competition rules in which many competitors are owned by Governments.

New Zealand and Australia, and indeed Air New Zealand and Qantas, have a long history of cooperation and shared interests. This "ANZAC" relationship reflects the ethos of both countries and both national carriers. This will underpin the cooperation required to deliver a genuine and mutually beneficial partnership.

Our relationship with New Zealand began as long ago as 1939 when we appointed our first commercial representatives. A year later we became a founding shareholder in, and provided technical assistance to, Tasman Empire Airways Ltd, which inaugurated a weekly service between Auckland and Sydney.

Qantas has been flying across the Tasman in its own right since 1961 and now operates about 200 flights each week between Australia and New Zealand. We recently announced that we would increase our Boeing 747 return services from Buenos Aires to New Zealand from two to three a week.

Overall, Qantas carries around 30 per cent of all international passengers travelling to Auckland, Wellington and Christchurch.

Why are we so confident that a Qantas-Air New Zealand partnership is the best outcome for both carriers? We have an established track record of working with partners for mutual benefit.

This is highlighted by our successful alliance with British Airways (British Airways owns 25 per cent of Qantas) and also our alliance with Air Pacific (Qantas owns 46 per cent of Air Pacific).

An important element of the Qantas-British Airways partnership is a comprehensive commercial agreement that covers areas such as frequency and flexibility of services, frequent flyer and lounge benefits and also fuel purchasing.

The Air New Zealand-Qantas partnership would be underpinned by a commercial agreement that ensures the best interests of both carriers are satisfied.

We would be pleased to have Air New Zealand aboard as a member of this powerful linkage of northern and southern hemisphere interests.

For all the reasons I have set out above, I believe our partnership would deliver the best outcome for Air New Zealand, Qantas and the aviation industry in the region.

It secures an exciting future for both Air New Zealand and Qantas and their employees. In fact it will expand opportunities in a number of areas. The koru would appear in new markets vital to New Zealand.

While this is properly a commercial transaction, it involves important national interest issues in both countries. The outcome we seek will require the approval of relevant competition authorities.

We are confident, however, that this will be forthcoming if due consideration is given to the challenges and competitive needs that must be met in order to ensure the long-term viability of our industry overall.

The partnership makes sound business sense. I am confident it could be achieved successfully because it would be built on a solid foundation of historical and proven cooperation and commitment. Shoulder-to-shoulder.

* Geoff Dixon is chief executive of Qantas Airways.

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