Questions mount as Air NZ mounts charm campaign

By NZPA

Monday 9th December 2002

Questions mounted today about the domestic monopoly Air New Zealand is proposing in its tie-up with Qantas, as well as the degree of control the Australian airline will hold over the New Zealand carrier.

Air New Zealand is today launching a major plank in its charm campaign to sway governments and competition watchdogs on both sides of the Tasman, claiming that the deal will be an overall benefit.

Details of a report commissioned by the airlines by Australian economic firm NEGC (Network Economic Consulting Group) are being released this afternoon.

NEGC has predicted New Zealand will get $1 billion of economic benefits over five years, mainly from an extra 50,000 tourists a year coming.

That would create an extra 2000 jobs in the tourist industry, it said.

The deal was also touted as creating an extra 200 jobs at Air New Zealand from extra engineering work done by the local airline for both companies.

Academics and an airline specialist cast doubts over just how glowing those figures were.

"The question you always have to ask ... is if they are such good ideas, why haven't you been doing them already?," Auckland University economics professor Tim Hazledine told National Radio.

"If you look down the sort of things that they are talking about, they actually can do them in different ways without becoming a monopoly."

Regulators need to be convinced that the potential for competition exists even if it never materialises, Mr Hazledine said.

Lincoln University transport studies professor Chris Kissling said it was a worry for consumers that there will be no domestic competition. An airline source told NZPA that 50,000 extra visitors and 200 jobs were "small beer", and "you would hardly hang your hat on them in a deal such as this".

While Qantas would only own 22.5 percent of Air New Zealand, its economic muscle and size would give them the lead role in inevitable future rationalisation, he said.

"Let's face it, they're putting up half a billion dollars for it, so they're going to negotiate to protect their interests, their investment and their commitment to their own shareholders.

"One of the ways of doing that is exercising as much control as you can negotiate. From what I've seen so far ... it infers that Air NZ haven't necessarily negotiated the best deal."

He questioned the motives of Qantas in chasing the deal.

"Twice the Australian Government have reneged on agreements which were leading to open skies between Australia and New Zealand, and only reneged on them because of the lobbying from Qantas -- you just have to throw up a big question mark about what their motives are."

He predicted an eventual full grown merger by stealth, which would take place when the public mood was right.

Air New Zealand would suffer most when that happened.

"Over time, a lot of Air NZ activity will be absorbed into part of the Qantas activity," the source said.

"I'm talking here about corporate functions such as the treasury function, aircraft insurance, fleet planning, fuel contracts ...

"If you go into an alliance, those are the bread and butter things which get done, because there are benefits to the carriers to do that.

"There are cost savings in combined buying power, you can strike a better deal."

In that case it was likely Qantas, as the bigger airline, would get to do them, at a cost to Air New Zealand jobs which would gradually move to Australia "or they will cease to exist".

He cited the British Airways-Qantas link-up as an example. Qantas staff numbers in Britain were now 10-15 percent of what they were before the arrangement, with the same true in reverse.

Questions should be asked about whether British Airways had any influence in the proposed merger, as it held significant control over Qantas.

When it bought into the Australian airline, British Airways made sure it had the right to veto senior Qantas appointments.

It also had the power to approve the purchase of new aircraft and the commencement of new routes.

"Will Qantas have any of those veto rights over Air New Zealand?

"I'm sure quite a lot of those elements will be in this agreement."

An extra 50,000 visitor arrivals over five years were "nothing" as New Zealand gets two million now.

"Even if numbers did go up, there is no way you can measure how many people are brought by action by Qantas," he said.

"Lots of things persuade people to travel. They don't travel because Qantas and Air New Zealand happen to be cohabitating".

It was "laughable" to count that as a reason.

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