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Air New Zealand is unlikely to follow through on a threat to make significant cuts to its transtasman service, industry observers say.
Falling fuel prices had taken the pressure off the airline since a code-share with Qantas was first proposed in April, analysts said yesterday.
"They won't make any radical changes," said Forsyth Barr head of research Rob Mercer. "They've got an environment that is probably going to work in their favour over the next couple of years, so hopefully that will help lift profitability."
The code-share proposal was knocked back in a draft decision by the Australian Competition and Consumer Commission (ACCC) on November 3.
Air New Zealand said at the time that the ACCC was "potentially forcing Air New Zealand to make capacity and route decisions that will come at a significant cost to consumers". Similar threats were made by the airline during the intense lobbying which has surrounded the proposal.
But the airline this week backed away from that aggressive stance as it formally withdrew the proposal.
Chief executive Rob Fyfe would say only that the route would now be subject to a review.
Air New Zealand declined to comment further on the issue yesterday.
Any capacity adjustments were likely to be modest and would be targeted at off-peak flying times in the middle of the day, said another industry analyst who asked not to be named.
But that could offer an opportunity for the likes of low-cost carrier Pacific Blue to increase its services, he said.
Pacific Blue is understood to be considering expanding its services anyway. The Virgin Blue owned airline did not respond to requests for comment yesterday.
Wellington Airport chief executive Simon Draper - an outspoken critic of the code share - said he was not concerned by the prospect of a Tasman review. It was something you'd expect an airline to do regularly, he said.
But at least without the code-share - if Air New Zealand did decide to cut services - there would still be a major competitor in Qantas to fill any gaps, he said.
Qantas also declined to comment.
The Australian airline appeared to have been "in wait-and-see mode" on the Tasman route for the last few years, Draper said.
During that time it had done a lot of work to improve and fine-tune its Australian domestic service and other international services.
So it was likely to have to play catch-up on Tasman now and some significant changes were possible.
It might look to reduce capacity of its Qantas-branded service but increase flights of its low-cost subsidiary Jet Star, he said.
It would not be easy for Air New Zealand to follow that path because it had moved to more closely integrate its low-cost carrier Freedom Air service with the main airline.
The industry view is that Emirates - which began flying the Tasman in 2002 - is not in a position to increase its capacity in the short term at least.
Air New Zealand shares have risen 5c since the code share proposal was scrapped on Wednesday. They closed last night at $1.52.
