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Airline gets on with the job

By Graeme Kennedy

Friday 12th September 2003

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Air New Zealand will survive and grow with or without its proposed alliance with Qantas.

The carrier's own domestic, Tasman and regional strategies are working well in an area largely isolated from the global woes that have plunged the aviation industry into its worst-ever downturn.

The first stage of reshaping the airline has been completed, with its Express Class, launched late last year, boosting domestic passenger numbers, while the low-cost Tasman Express service, to start next month, is already stimulating travel on Australian routes.

And Air NZ is expected to further strengthen its short-haul market with the expansion of the Express model to regional Pacific routes next year.

With a new fleet of more efficient Airbus A320s scheduled to begin arriving on September 21, following a $165.7 million return to profit announced last month, the carrier has established a steady base for the future.

Chief executive Ralph Norris said the airlines would seek an Australian Competition Tribunal review of the Australian Competition and Consumer Commission's strong rejection this week of the plan for Qantas to take a 22.5% stake in Air New Zealand.

But that move seems as likely to succeed as gaining approval of the alliance from the New Zealand Commerce Commission, which will deliver its decision later this month.

The ACCC condemned the proposal as strongly anti-competitive and the tribunal is, for the same reasons, unlikely to reverse that finding.

Air NZ, which played the public-interest card to support its initial case but got firmly rejected by both regulators, began the second round with arguments that competition had greatly increased on the Tasman and relaxed its position on Virgin Blue entering the market.

But competition, particularly from high-profile Emirates, exists only on Australia-Auckland routes and leaves other markets to Qantas, Air New Zealand and its subsidiary Freedom Air.

While Virgin Blue, apparently convinced the alliance is dead, says it is making plans to enter the Tasman and domestic New Zealand markets, Sir Richard Branson's fast-growing Australian carrier will have to be content with low yield if it is to substantially undercut Air New Zealand's already-low fares in those sectors.

With domestic, Tasman and regional growth strategies in place, Air NZ's will have to address its long-haul product, which the carrier admits is below full-service standards widely accepted in premier first and business cabins of other international airlines. Upgrading will be costly but must be done.

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