Fears that United could impact on Air NZ-Qantas alliance

By NZPA

Wednesday 11th December 2002

United Airline's financial troubles could have ramifications for Air New Zealand and its proposed marriage to Qantas, analysts say.

Australian analysts are predicting that Qantas will likely enjoy a small windfall following United's decision to file for bankruptcy protection yesterday.

"People are going to be very hesitant about flying United, so that will be beneficial for... Qantas," one analyst said.

The same consumer reaction could impact on Air NZ which, like Qantas, flies the Pacific to the States.

But the shaky financial state of the world's second biggest carrier could also spell trouble for Qantas' bid to take a 22.5 percent stake in Air NZ.

Competition regulators -- who must approve the deal -- may be concerned that Qantas and Air NZ would be handed a monopoly on the trans-Pacific route if United ultimately failed, analysts said.

"If they (United) did retrench from the trans-Pacific and nobody else stepped in, then you would essentially have Qantas and Air NZ being the total market," one commented.

UBS Warburg New Zealand analyst Timothy Ross felt the monopoly threat was not so pressing.

"This is probably the last part of the world that (United) are likely to withdraw from, purely because it is the part of the world that performs least badly for them.

"In the event that they did, where it would affect the Qantas-Air NZ merger is in regards to the Los Angeles-Sydney leg... Air NZ operates one flight a day so it may feature in regulators' thinkings but I don't think it's going to be the be-all, end-all of the whole transaction."

Also possibly affecting the Air NZ-Qantas tie-up are reports that formal talks about an open skies policy between Australia and Singapore are on hold.

The Australian Financial Review today reported that the talks had been deferred because of global aviation uncertainty and the need to examine the Qantas-Air NZ proposal.

Some industry commentators have suggested that allowing free skies between Australia and Singapore could enable Singapore Airlines to offer direct flights between Australia and the States, thus alleviating some trans-Pacific competition concerns.

Further competition concerns may arise from a suggestion in a consultancy's report this week that Air NZ will pull out of the Sydney-Los Angeles route if the Qantas partnership goes ahead.

But Mr Ross says Air NZ, which codeshares with United, would still fly its more regular Auckland to LA route.

Analysts are fairly confident United will pull through the move to Chapter 11 or statutory management.

However, they are mixed on whether a fare war could emerge, with United slashing fares to increase its cash flow.

United holds 30 percent of the trans-Pacific market compared to its Australian rival, which holds 60 percent.

Qantas has been slowly increasing its presence on routes to the US, and last month announced it would start flying to Chicago from Melbourne via Los Angeles in March.

Qantas said the new schedule would boost its capacity on the trans-Pacific route by 25 percent.

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