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No Retreat, No Concessions From Air New Zealand

No Retreat, No Concessions From Air New Zealand

Statement made by Ralph Norris, Managing Director, Air New Zealand

Air New Zealand has no intention on giving up on the Strategic Alliance with Qantas and believes we will ultimately succeed.

Nor do we concede that we will have to make major concessions. This is not the critical issue in the Commissions’ draft determinations.

Too many are making the assumption that the draft determination is the final decision. All the draft determination does is lay out of the issues that need resolution.

We now have the advantage of knowing much more clearly what we have to do to convince the Commissions.

There is a world of difference between computer modeling and the purity of economic theory on one side, and the harsh realities of a rapidly changing, competitive market.

The Commissions’ draft determinations would lock us into the past, whereas to succeed in the future requires radical and bold change.

It is totally unrealistic in the new order of aviation around the world to assume that Qantas will not, in the absence of the Alliance, move aggressively to protect its position in the New Zealand domestic and trans Tasman markets.

The changes in the industry forcing major airlines into bankruptcy are not cyclical – they reflect underlying change in the market’s characteristics.

The expectations of passengers have changed and budget airlines are providing point to point travel on cherry picked routes, and in doing so undermine traditional airlines which provide comprehensive, geographical networks.

These are the pressures on Air New Zealand and Qantas. Together we have a chance of creating stability in aviation in a region which has seen the industry in turmoil for the last three years, causing severe hardship to thousands and huge economic waste.

Without the Alliance, Qantas simply cannot afford to live in its status quo position in local markets and Air New Zealand cannot afford not to respond. The “war of attrition” is not an economic theory – it is commercial reality.

We are encouraged that the New Zealand Commerce Commission in its draft determination has sought further comment from interested parties covering more than 60 specific areas.

Within our response we will focus on invalid assumptions, double counting, and unrealistic forecasts contained within the draft determinations.

A major flaw in the Commissions’ analyses is the lack of emphasis it placed on the incentives that exist for Qantas to increase its capacity in Air New Zealand’s core markets. It is also aggressively over confident about the sustainability of Air New Zealand’s current financial position.

To infer that there may be other alliance partners waiting in the wings or that the Government or other benefactors will put additional capital into Air New Zealand on request is unrealistic.

Regretably, fairy godmothers do not exist in business. There are however many predators who would like to control Air New Zealand, or see it weakened.

The New Zealand Commission is also at odds with its Australian counterpart on Virgin Blue’s inevitable entry onto the trans Tasman and domestic New Zealand routes. Virgin Blue has said it will enter these markets and is cynically posturing to gain a commercial advantage.

Virgin Blue is in effect demanding competition watchdogs give it a free monopoly on the budget airline business across the Tasman and domestically in New Zealand. Air New Zealand cannot allow this to happen without the ability to compete in the budget market with Freedom, which has been built over seven years to provide the service many leisure travellers value.

The Commission totally discounts significant elements of the proposal, including the value of additional tourists the Alliance will bring to New Zealand and the beneficial impact on New Zealand jobs additional engineering work will provide. These must clearly be addressed more specifically in our responses to the Commissions.

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