29 April 2010

Why a Virgin-AirNZ tie-up may be good for Qantas

BRISBANE - News that Virgin Blue and Air New Zealand are in Ã¢â¬Åâœcommercial co-operation talksÃ¢â¬~ is attracting plenty of comment among analysts today.

Ben Sandilands, writing in Plane Talking says an alliance would be very potent, Ã¢â¬Åâœgiven that Virgin Blue is now, by a whisker, the largest jet airline within Australia, and Air NZ is the dominant carrier within New Zealand, and that the gap between them is massively over servicedÃ¢â¬~.

Ã¢â¬ÅâœBut they have much to dislike about each other too,Ã¢â¬~ Sandilands says.

Ã¢â¬ÅâœVirgin BlueÃ¢â¬â¢s NZ based Pacific Blue operation, and its joint venture with Samoa in Polynesian Blue, have been very successful incursions into the regional SW Pacific market that was once all but completely owned by Air NZ."

Sandilands goes on to say, Ã¢â¬ÅâœThose issues aside, an effective route sharing and network connecting deal between Virgin Blue and Air NZ would make matters awkward for Qantas and Jetstar.

Ã¢â¬ÅâœIt is not hard to contemplate a John Borghetti-led Virgin Blue making sure than any such alliance saw it jointly expand into the business and fuller service market between both countries while leaving Qantas to rely on the Jetstar product, which is forever vulnerable to expectations of very low prices and price attacks from brands with higher consumer profiles.Ã¢â¬~

Stephen Bartholomeusz, writing in Business Spectator says Qantas twice tried and failed to get what was initially an alliance and subsequently a code-sharing deal past competition regulators.

Ã¢â¬ÅâœNow itÃ¢â¬â¢s Virgin BlueÃ¢â¬â¢s turn to try to do a deal.Ã¢â¬~

Bartholomeusz argues that Qantas and Jetstar probably wouldnÃ¢â¬â¢t be dismayed by a Virgin Blue/Air NZ tie-up.

Ã¢â¬ÅâœWhile it would strengthen a competitor it would also, like the V Australia/Delta deal, probably help reduce some of the excess capacity on the routes and produce more rational/profitable competition during a period where the entire industry is still suffering from the devastating flow-on effects of the financial crisis.

Ã¢â¬ÅâœThe industry needs rationalisation and reduced capacity.

Ã¢â¬ÅâœIf Qantas isnÃ¢â¬â¢t allowed to lead that process in this region then it is probably preferable from its perspective that someone else is allowed to do it, even if it does strengthen a competitor in the process,Ã¢â¬~ Bartholomeusz wraps up.