Skies cloudy after bold Qantas bid

By SCOTT MacLEOD and DANIEL RIORDAN

Qantas Airways' surprise bid for Air New Zealand could lead to higher airfares on New Zealand routes, say tourism and consumer analysts.

But some aviation commentators believe the proposed deal may have the reverse effect - leading to a return to head-to-head local competition between Air New Zealand and its former rival Ansett and driving down fares.

The conflicting speculation about the future of the airline industry came after Qantas' stunning bid for Air New Zealand.

The Government has not ruled out letting the bid go through.

Under the deal - dubbed Operation Piccolo - Singapore Airlines would buy Ansett Australia from Air New Zealand, giving it access to Australia.

Qantas would then buy Brierley's 30 per cent share and Singapore Airlines' 25 per cent share in Air New Zealand, giving it control of the airline and a huge share of the transtasman market.

However, Qantas indicated yesterday that it might be prepared to settle for 25 per cent of Air New Zealand, the maximum allowed under present Government policy.

The Prime Minister, Helen Clark, and the Minister of Transport, Mark Gosche, were reserved about the Qantas bid but did not rule it out entirely.

Helen Clark said that when it came to foreign airline ownership limits, there was no reason to look more favourably on Qantas than on Singapore Airlines, which has previously sought a 40 per cent stake in Air New Zealand.

"They are both good airlines but the same issues arise. The Commerce Commission would be a major issue for such a proposal."

Mr Gosche said competition and landing rights issues would have to be addressed.

Air New Zealand's international landing rights depend on its being majority-owned by New Zealanders.

The Qantas play stirred a rally in Air NZ's share price.

Its A shares - which are restricted to New Zealand residents - rose 9 cents to $1.09.

The B stock, available to allcomers, closed 14 cents higher at $1.51. Qantas stock also firmed.

However the bid worried tourism and consumer experts concerned about the potential for higher fares.



Consumers' Institute chief executive David Russell predicted stiff resistance from competition watchdogs on both sides of the Tasman.

"At face value, our strong view is that it would lessen competition. We need strong competition between airlines to keep airfares down."

Tourism NZ chairman Peter Allport said he would be surprised if the deal were allowed to go ahead.

"From a Tourism NZ point of view, we would like to see competition between airlines.

"When airlines compete there are lower airfares and when they don't, airfares tend to be higher."

Flight Centre sales and marketing manager Graeme Moore said the move would be abhorrent for New Zealand if permitted.

New Zealanders would ultimately pay with higher airfares.

"I can't see how they would be allowed to do it. Everything that this and other Governments have tried to do to foster competition would go out the window."

The Commerce Commission and the Australian Competition and Consumer Commission said they had received no formal approach from the airlines, but would investigate if the deal firmed.

However, Australian aviation analyst Peter Harbison, director of the Sydney-based Centre for Asia-Pacific Aviation, predicted that the regulators could approve the deal but force Singapore Airlines to bring Ansett back into the New Zealand domestic market to ensure competition.

Another hope for more competition in New Zealand is the possible entry of Australia-based airline Virgin Blue.

Its commercial head, David Huttner, said competition between the bigger airlines was already a sham and he felt the deal would probably make little difference to airfares if it went ahead.

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