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Qantas, Air NZ put alliance grouping decision in pending basket


Tuesday 26th November 2002

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Which global frequent flier alliance Air New Zealand ends up in if its marriage with Qantas proceeds has for now been put into the pending basket.

Global alliances are seen as vital these days, both from a passenger and airline viewpoint. Passengers get frequent flier benefits that engender loyalty to particular airlines while airlines generate savings of billions of dollars across the alliance as well as winning customer allegiances.

Air NZ belongs to the 15-member Star Alliance, the biggest and dominant of four world groups that includes Singapore Airlines, Lufthansa and the near bankrupt major member, United Airlines.

Qantas is a member of oneworld, which includes its 17 percent owner British Airways and American Airlines.

Qantas and Air NZ, which yesterday conditionally announced a strategic alliance that involves Qantas taking a 22.5 percent stake, said no decision had yet been made on alliances.

Air NZ said its members' airpoints were fully protected and no decision would be made in the near future regarding membership of Star.

It said it expected the extension of its Airpoints scheme to Qantas services.

"No decision will be made in the near future and it should not be assumed Air New Zealand would leave the Star Alliance," Air NZ chief executive Ralph Norris said.

Star Alliance said it had been kept informed of the 12 month-long negotiations and its members recognised the business rationale of the proposal.

It said Air NZ "continues to be a valuable and active participant".

"Within Star Alliance, Air New Zealand and the other members are currently investigating all opportunities arising from this announcement," Star said.

This enigmatic statement appears to leave the door open. Normally an equity alliance between two airlines from opposite groupings would result in one being booted out of one of the groupings.

Star has earlier denied it would cost Qantas over $50 million to get Air NZ out of the alliance, but it could still costs tens of millions.

One reason the door appears to have been left ajar is that Star may be trying to woo Qantas into its fold. The collapse of Ansett last year left Star with a gaping hole in Australia.

There has long been a suggestion that Singapore Airlines might buy BA's stake in Qantas and fulfil the long-held desire to get into Australia that led it disastrously to buy into Ansett via Air NZ.

Qantas chief executive Geoff Dixon's praise of oneworld yesterday sounded as thin as a politician praising a party leader shortly before attempting to topple him or her.

While Air NZ has always waxed lyrical about Star and its benefits, the best Mr Dixon could say about oneworld was it was "quite comfortable with that in the current circumstances".

Qantas had always stated that multi-lateral alliances, while important, were nowhere near as important as bilateral alliances, he said.

"I don't think that alliances are the panacea that people think and do not cause the problems that people believe if an airline is not a member of a certain alliance in a particular country," Mr Dixon said.

There has been no Star carrier in Australia since Ansett's demise but there was no evidence of any lessening in traffic to Australia, he said.

Merrill Lynch analyst Simon Gresham dismissed suggestions that Qantas got less value out of oneworld than Air NZ got from Star.

Qantas values its relationship with American extremely highly, he said.

"They will avoid at considerable cost changing from American Airlines to any other US carrier. American is perfect for Qantas -- they are a good operator and let Qantas do all the flying and they provide all the fee traffic.

"The relationship is highly profitable and Qantas would not to walk away from that."

Mr Gresham said that the ideal solution could be for each airline to retain their alliance grouping but instead to merge their frequent flier programmes.

He said Mr Dixon was lukewarm on oneworld as Qantas sees little value in a globally branded product and prefers closer alliances such as it has with BA and plans to have with Air NZ.

Peter Harbison, of Australia's Centre for Asia Pacific Aviation, agreed. Because talks with regulators would drag on for six to nine months, there was no urgency, he said.

To have separate alliances could be an added string to their bows.

"It is possible we could see some sort of hybrid relationship with a close bilateratal relationship that spans two alliances."

That could serve the purpose of making it more complex for Singapore to enter the market.

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