Alliance failure blow for Pacific Blue

By Nick Stride

Friday 24th September 2004

The demise of Air New Zealand's proposed alliance with Qantas is bad news for Pacific Blue, according to airline analysts.

Twelve airlines fly transtasman routes although market share is dominated by Air New Zealand and Qantas, with 86% between them.

"Under the strategic alliance there was expected to be reduction in excess capacity and more rational pricing behaviour by Qantas and Air NZ overseen by two regulatory bodies," Greg Ward, an analyst at Credit Suisse First Boston, said. Pacific Blue was also likely to have extracted various concessions and conditions as the price of support for the alliance for instance, access to gates at Auckland International Airport.

It was unlikely these would now be forthcoming.

Data from Australia's Bureau of Transport and Regional Economics and Avstats, cited by Credit Suisse, showed Air New Zealand has lost six percentage points of transtasman market share over the last two years. The airline itself has 32% and its Freedom Air budget subsidiary has 15%.

Qantas has 39%, Emirates 5%, and Pacific Blue, Thai Airways, and "others" 3% each. The others are Royal Brunei, Aerolineas Argentinas, Air Pacific, Polynesian Airlines, Garuda and Chile's Lan.com.

"Emirates and other Asian carriers have been the main beneficiaries of this market share loss by Air NZ, as well as Pacific Blue," Main said. "We expect competition will continue to intensify on the transtasman as Asian carriers target further market share gains."

Forsyth Barr head of research Rob Mercer said other factors were driving intensifying competition. "There continues to be intense competition on lower airfares as airlines globally move to a lower cost structure model. We expect to see further capacity from other airlines on the Pacific Rim routes which will use newer low-cost aircraft to increase frequency."

Air New Zealand's Ralph Norris is meeting Qantas' Geoff Dixon today.

Norris this week highlighted the possibility the two carriers could co-operate in ways that wouldn't upset competition regulators.

But analysts said Qantas' main focus would probably be pursuing an alliance with another regional carrier such as Singapore Airlines, now that it has British Airways off its share register.

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