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Qantas deal reshapes Asian aviation
By Geoff Hiscock
SYDNEY, Australia (CNN) -- Asia-Pacific airlines face even tougher competition from Australia's Qantas Airways after it sealed its long-awaited alliance with Air New Zealand on Monday. Singapore Airlines, Cathay Pacific, Malaysia Airlines and Thai are some of the carriers whose long-haul routes between Asia and Europe will come under further pressure from a beefed-up Australian competitor. Qantas announced Monday it will take a 22.5 percent cornerstone stake in Air New Zealand and invest up to NZ$550 million ($277 million) in a three-stage process. Under the deal, all Air New Zealand's domestic and international flights will be coordinated with Qantas flights to, from and within New Zealand. Peter Harbison, managing director of the Sydney-based Center for Asia-Pacific Aviation, told CNN on Monday that the Qantas move was the first real consolidation step among airlines in the region. "It is what virtually every airline in the world needs to do, but can't," he said. The Australasian alliance, which is designed to cut costs and improve efficiency through code-sharing, comes against a background of looming instability for the world's airlines. The likelihood of war in the Middle East, with its expected impact on tourism and the cost of aviation fuel, will make it even tougher for conventional full-service airlines to remain profitable, according to a new analysis by the Center for Asia-Pacific Aviation. Analyst Derek Sadubin said that any step towards war in Iraq "will only serve to accelerate the process of creating an environment in which low-cost no-frills airlines can show their competitive advantange." Qantas launched a low-cost international carrier, Australian Airlines, on October 27, with the first services going to the Japanese cities of Nagoya and Fukuoka. It has since added flights to Singapore, with Hong Kong, Shanghai and Taipei services planned. Singapore Airlines' Silk Air and the Malaysian newcomer Air Asia are similar carriers in the low-cost arena. United Airlines' future
Another major factor affecting Asia Pacific airlines is the likelihood that troubled American carrier United Airlines will file for bankruptcy protection next week unless it can win fresh backing from its creditors. United is a founding member of the Star alliance, and code shares with Singapore Airlines, Air New Zealand and Japan's All Nippon Airways on routes across the Pacific to Tokyo, Auckland and Singapore. The demise of United would boost Qantas and Cathay Pacific on their respective routes from Australia and Hong Kong to the United States, the center said in a recent analysis of U.S. carriers. The Qantas-Air New Zealand deal, which has been under discussion for more than a year, still requires approval from the two countries' competition watchdogs -- New Zealand's Commerce Commission and the Australian Competition and Consumer Commission (ACCC). That is likely to take at least six months and is by no means guaranteed, according to industry observers. ACCC chairman Allan Fels said on Sunday that "on the face of it", an alliance between Qantas and Air New Zealand would lessen competition and could not proceed unless it was shown to be of public benefit. News of the deal sent Air New Zealand shares soaring on Monday, up almost 10 percent on the Australian Stock Exchange to A$0.50. Qantas shares are up 1.53 percent to A$3.99 in late morning trade. Seats on boardQantas will get two seats on Air New Zealand's eight-member board and Air New Zealand will have one seat on the Qantas board. Air New Zealand's chairman John Palmer told a press conference in Auckland on Monday that the negotiations had been "tough, and at times tetchy", but the deal would ensure the airline retained its autonomy and independence. The New Zealand government, which rescued Air New Zealand when it fell into difficulties after the collapse of its Australian subsidiary Ansett Airways last year, will see its 82 percent shareholding reduced to about 64 percent. In contrast to Air New Zealand's slide almost into bankruptcy last year, Qantas is one of the region's most profitable airlines, posting a full-year net profit of $234 million in August. (Full story) Its single biggest shareholder is British Airways, which allowed its stake to fall from 21.5 percent to about 17 percent after it declined to take part in a $440 million Qantas capital raising in August. Qantas CEO Geoff Dixon said the airline would use money from that capital raising to pay for the new shares. Dixon said the partnership would help both airlines retain their independence in an industry facing considerable and continuing difficulties. SynergiesHe said it would deliver synergies of up to $225 million by year three of the agreement and would add to earnings per share from 2003-04 onwards. Singapore Airlines, which held a 25 percent stake in Air New Zealand until the New Zealand's government rescue via a $366 million restructuring last October, has since seen its stake fall to 4.5 percent. Qantas and Air New Zealand will code-share extensively across their networks, including all New Zealand domestic flights, trans-Tasman flights and those between New Zealand and the Americas. Air New Zealand will get feeder traffic from Australia and access to the Australian domestic market. The Center for Asia-Pacific Aviation's Harbison said the terms of the long-awaited alliance exhibited a "closer relationship" than he had expected. The deal means that Australian-based discount carrier Virgin Blue will probably now not enter the New Zealand market. Virgin has said repeatedly that an alliance between Qantas and Air New Zealand would put its own expansion plans across the Tasman on hold. The alliance also strengthens the ability of Qantas and Air New Zealand to compete with other regional carriers such as Singapore Airlines, Cathay Pacific and Malaysia Airlines on long-haul routes to Europe. One issue unresolved is that of global alliances. Qantas is part of the British Airways-led oneworld alliance, while Air New Zealand is a member of the rival Star alliance. No early decisionAir New Zealand CEO Ralph Norris said there would be no early decision about these international alliances. Palmer said it could take up to nine months for the process to be completed. He hoped the regulatory approvals would be completed by mid to early 2003, with shareholder approval in mid to late 2003. Air New Zealand said an independent economic analysis showed a net benefit of $500 million to the New Zealand economy over the next five years. The comparable benefit to Australia is estimated at $380 million. Palmer told reporters that the Air New Zealand board had looked at a range of alternatives to the Qantas deal, but the alliance with the Australian carrier was "by far the best" arrangement the board could have pursued.
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