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Strategic Alliance Benefits and Detriments - NECG

December 9, 2002

Air New Zealand & Qantas

Strategic Alliance Benefits and Detriments

Public benefits

... Cost savings through:

- Economies of scale

- Improved aircraft selection and purchasing

- Efficiencies of $183 million for New Zealand (by year 3)

... Scheduling efficiencies leading to:

- Improved flight frequency and capacity

- Enhanced connectivity

- Potential for additional direct services

- Annual benefits worth $21 million for New Zealand (by year 3) ... Increased number of tourists to New Zealand through:

- Improved promotion efficiencies and levels

- Decreased travel time and complexity for inbound tourists

- Encouraging Qantas Holidays to promote New Zealand as a destination

- Additional 53,000 tourists per year and a gain of $148 million to New Zealand by year 3 ... Increase in engineering and maintenance jobs for Air New Zealand

- Makes Air New Zealand the preferred provider for Qantas maintenance work

- Air New Zealand will be assured some $39 million in annual billings allowing them to invest in new maintenance (increasing capacity to compete internationally for further maintenance work from other third parties)

... Improved freight operations and capacity particularly from NZ to Australia

- An additional 247 tonnes of capacity / week

- Annual benefit of $4.6 million by year 3

... Improved efficiency in use of capital

- The alliance decreases the possibility that the Government will need to commit additional funds.

... Global competitiveness

... Preservation of New Zealand’s national flag carrier

... Will stimulate entry of a new no-frills entrant which is likely to be more profitable than it would otherwise be without the alliance

Public Disadvantages

... Possibility of rise in airfares and hence reduction in number of travellers

... Reduction of competition in marketplace.

... Restrictions on Air New Zealand’s capability to grow into the Australian domestic and beyond market.

... Perceived loss of national ownership of the flag carrying airline

Net Benefits NZ$1.433 billion over first 5 years.

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