Threat of competition hits Air NZ stock

American Airlines and Qantas will lodge an application to operate transpacific services from New Zealand.

Shares fall 5 per cent after American Airlines deal with Qantas but travel rep says move would boost overall market.

Air New Zealand shares fell by nearly 5 per cent after news that it could face competition on its lucrative direct routes to the United States from the world's biggest carrier, American Airlines.

One fund manager said although a lot of water was yet to go under the bridge, the news was not good for Air New Zealand, whose shares fell from $2.81 to $2.67 yesterday.

"We think it's one of the better routes that they have. It's not helpful to their profit to have someone else fly on it and I think the reaction in the share price is around this," said Salt Funds managing director Paul Harrison.

American Airlines yesterday said it had deepened its relationship with Qantas and the airlines will lodge an application with regulators here for permission to operate transpacific services from New Zealand.

Another analyst said the news was "not good" for Air New Zealand which would also take a hit from a decision by Qantas to return to the Sydney-San Francisco route.

An American spokesman said while there was "nothing to announce today" the expanded relationship with Qantas provided a foundation for possibly adding new routes, including New Zealand.

"It's certainly on our radar and we'll continue to explore the route to see when it makes sense financially."

Air New Zealand has had a monopoly on flying directly across the Pacific to the US since Qantas withdrew from its loss-making Auckland-Los Angeles route in 2012.

Qantas believes that while it was difficult to resume services by itself, it could be feasible in partnership with American Airlines, using the US carrier's planes.

"It's certainly a market that Qantas and American are interested in [in] the context of the partnership and that's why we'll be lodging with the New Zealand Ministry of Transport for regulatory approval to serve the market at some point," a Qantas spokesman said.

American has emerged strongly from financial turmoil over the past two years, trebling first-quarter profit to US$1.2 billion ($1.67 billion) and is now rapidly adding new aircraft to its fleet. Qantas has also returned to profit after heavy losses on its international routes weighed on it.

In an announcement in Miami yesterday Qantas and American Airlines said a "significant expansion of their longstanding relationship" would result in the US carrier flying from Los Angeles to Sydney for the first time and Qantas' return to San Francisco at the end of the year.

American Airlines chairman and chief executive Doug Parker said strengthening ties with Qantas had provided a solid foundation for the airline to introduce American-operated flights into the Australian region.

House of Travel commercial director Brent Thomas said if American did choose to fly directly it could stimulate the overall market.

"When another airline comes on to a route that is dominated by one carrier we don't just see a shift from one to another but we see an increase in the number of people going up to the States."

Thomas said American Airlines had an impressive network not just through the continental United States but also in South America and on to Europe.