Virgin Blue sees commerce watchdog, Qantas expands fleet

10.40am

The battle for New Zealand's aviation market is heating up, with Virgin Blue meeting with the Commerce Commission today and Qantas announcing the expansion of its New Zealand fleet.

A Commerce Commission spokesperson said the meeting between cutprice Australian airline Virgin Blue and the commission had no hard and fast agenda.

"It's certainly wrapped up in understanding what the competition laws are here in New Zealand," she said.

Virgin Blue said earlier the year that it wished to fly the trans-Tasman route, possibly with a view to flying within New Zealand, within 12 months.

Aviation experts have seen Air New Zealand's decision to beef up its cut-price Freedom Air flights to Queensland as a pre-emptive strike against Brisbane-based Virgin, although Queensland is also New Zealand's biggest overseas holiday destination.

Meanwhile, Qantas announced plans to lease three more Boeing 737-300 planes to boost its New Zealand operation.

"Our goal is to move quickly to meet the needs of Australian and New Zealand travellers," chief executive Geoff Dixon said in a statement.

The airline also announced a $400 million spend-up on four new Boeings to meet expected growth in the Australian market in the wake of Ansett's collapse.

The near-doubling of Qantas' New Zealand fleet to seven planes has been seen by the Australian media as a way of putting pressure on Air NZ to sell it a cornerstone stake.

Qantas is widely tipped to be seeking a 25 per cent share in the New Zealand carrier, a move which has alarmed some market analysts.

According to the Sydney Morning Herald today, speculation over the weekend was that Air NZ had sought a valuation of its worth from Cameron & Co as part of its negotiations with Qantas.

It said the Australian sharemarket was expecting Qantas to raise A$500 million ($577 million) to A$1 billion ($1.154 billion) through an issue of new shares, to fund new aircraft and a stake in Air NZ. Pundits expect an outcome after the elections at the end of this month.

The Australian Financial Review this morning interpreted Virgin's visit to the Commerce Commission as a way of raising concerns about the rumoured Qantas deal.

The paper said Virgin Blue would ask that Air NZ be forced to divest Freedom Air if the deal proceeded. Concerns over the possible sale carried into the election campaign yesterday with Labour's opponents continuing to pressure the Government to clear up speculation about the sale.

The Government says it has not been party to talks and says any proposals would have to be considered by the Air NZ board before coming to the Government for approval or rejection. This has yet to happen.

Members of the financial community have warned of the consequences of relinquishing control of Air NZ to its dominant trans-Tasman rival.

"Of all the privatisations that have taken place in the last 20 years, I can think of no other asset sale that would hand such unmitigated monopoly power to a foreign buyer," Simon Botherway, head of fund manager Brook Asset Management, said last week.

"A deal of this nature is effectively securitising New Zealand consumers' future air travel revenue and selling it off to a monopolist. This would have serious adverse implications for New Zealand's long term competitiveness."

Wellington investment banker Lloyd Morrison began campaigning against the deal last week, e-mailing about 300 sharebrokers.

He said Air NZ's desire to boost its short-term profitability by reducing competition would ultimately raise the cost of airline travel and hurt the country.

Shares in Air NZ were down a cent to 66c at 10.10am this morning.

- NZPA

nzherald.co.nz/aviation

nzherald.co.nz/travel