Editorial: Let Air NZ get on with its real business

The High Court's thumbs-down for Air New Zealand's alliance plan with Qantas will go down as one of the least surprising verdicts of this or any other year. So sweepingly had the Commerce Commission rejected the airlines' case that any appeal against its finding needed to pull many a rabbit from the hat. The verdict confirms that Air NZ failed to do so. Justice Rodney Hansen and lay expert Kerrin Vautier had no option but to uphold the interests of the travelling public.

Air NZ's case to the High Court did, in fact, differ markedly from that rejected by the competition watchdog. It had told the commission that if an alliance were blocked, it would face a war of attrition with Qantas, and inevitable defeat. To the court it presented the idea that both it and Qantas were under the blow-torch of competition, especially from low-cost Pacific Blue and full-service Emirates. These rivals, and the possibility of competition swelling, would be enough to stop Qantas and Air NZ raising fares and reducing service.

That case, however, was as flawed as the airlines' first salvo. New arrivals - the likes of Emirates and Lan Chile - have, indeed, promoted lower fares by upsetting the cosy duopoly on transtasman routes. But they offer Air NZ's argument only superficial sustenance. There is no guarantee that any of these fly-through carriers will be permanent fixtures. Indeed, one - Malaysian - has left. Equally, Pacific Blue has not expanded its operations as quickly as expected. It is still not flying from Auckland. Competition remains fledgling, and more in the realm of potential than reality. In terms of seat numbers, Air NZ and Qantas continue to dominate flights across the Tasman. If united, there is nothing to suggest they could not influence market prices.

In fact, the Commerce Commission's decision factored in the arrival of Pacific Blue - and still predicted a 19 per cent increase in average airfares. Time has made its findings remarkably prescient. Seventeen months ago, its initial decision foresaw a gradual recovery in Air NZ's financial position, moderate competition from Qantas on the Tasman and domestic routes, the medium-term possibility of an alternative alliance, and the arrival of the Virgin offshoot. All bar an alliance with a more suitable international partner have come to pass. That, also, should now be one of Air NZ's priorities.

The airline has in a remarkably short time shrugged off near-bankruptcy and transformed itself into a value-based carrier. So successful has been that policy that Air NZ posted a healthy June-year profit and announced plans for a $1.8 billion fleet upgrade, an entry card to the lucrative Chinese market. Even in a cut-throat environment, it has been able to perform admirably. Much of this may be down to the removal of the streak of arrogance detected by chairman John Palmer when he came to the airline during its nadir, and the adoption of a clearer focus under chief executive Ralph Norris.

The planned link with Qantas has unquestionably been a distraction, however. Now, as the Australian airline intimates, that should cease. The High Court has strongly, and correctly, endorsed the Commerce Commission's findings. That it took it a relatively short time to reach its conclusion speaks volumes of the paucity of merit in Air NZ's case. The same shortcoming is sure to lead the Australian Competition Tribunal likewise to reject the alliance.

That should be the final word on this most ill-conceived of proposals. Air NZ is performing better than even the most optimistic of predictions. Its own pessimism has proved groundless. It would be wrong, however, to belittle the challenges ahead, especially later in the decade when the ageing Boeing 747 fleet will be phased out. Air NZ's focus must now be on refining its position as a low-cost regional carrier and honing its competitiveness. At least it no longer has to face the distraction of a hugely discredited alliance plan.

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