Domestic Routes Key to Air New Zealand Survival

Domestic Routes Key to Air New Zealand Survival

Statement made by John Palmer, Chairman, Air New Zealand Limited

Air New Zealand must maintain a viable position in the New Zealand domestic market if it is to survive.

This is the bottom line in the case the airline has outlined in its application to the New Zealand Commerce Commission in seeking to enter into a strategic alliance with Qantas.

In order to retain the continued loyalty of our customers in the domestic market, it is critical that we maintain the policies which have won our customers’ support. We cannot afford to lose that support through arrogance or price increases.

Qantas is a formidable competitor and in the absence of an alliance with them we face a lengthy “war of attrition” to maintain our viability in the domestic market and on key international routes.

Air New Zealand cannot afford to surrender its domestic networks to Qantas or any other new or expanding domestic airline, as to do so would mean we face ultimate failure.

In the absence of an alliance, continuation of the war of attrition is unavoidable. Even with the alliance our home market must be defended.

While currently in a position of relative strength, Air New Zealand is not well placed to win this battle with Qantas in the medium to long-term. Qantas knows we do not have the financial resource to engage them long-term in an on-going fight for market share.

For Qantas’ part, its domestic New Zealand services must currently be far from profitable and in order to reverse that position it must either progress the alliance with us or increase capacity in order to provide better frequency.

Any increase in Qantas’ capacity and resulting battle for customers will only increase the intensity of a war of attrition.

It is also only a matter of time, probably less than three years, before a no frills operator enters the New Zealand market, whether the alliance proceeds or not.

When this occurred in Australia, it was a major contributor to the collapse of Ansett.

If Air New Zealand and Qantas are still engaged in a war of attrition when a no frills operator emerges, it will almost certainly lead to either Air New Zealand or Qantas leaving the New Zealand market.

A one off equity injection does not provide the answer for Air New Zealand, nor does an alliance with another airline which simply expands Air New Zealand’s international network outside Australasia.

The strategic alliance with Qantas provides the only answer that can ensure Air New Zealand’s survival as an independent, New Zealand owned and controlled, domestic and international airline.

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