Grant Bradley

Aviation, tourism and energy writer for the Business Herald

Air NZ soars as Qantas plunges

Analyst says New Zealand airline stands to gain from the painful restructuring of Australia's national carrier.

Air New Zealand will benefit from a weakened Qantas as the Australian airline battles to turn around big losses by slashing jobs, axing routes and grounding planes.

The two airlines released contrasting interim results within hours of each other with Air New Zealand's six month after tax profit a record at $140 million and Qantas reporting a $252 million loss, and announcing 5000 jobs will be axed and more than 50 aircraft will be grounded or go as the airline shrinks to survive. The airline aims to make savings of $2.16 billion.

Qantas' New Zealand operations, including subsidiary Jetstar, are not mentioned in yesterday's announcement but a spokesman said no services here would be affected.

An analyst at Craigs Investment Partners Chris Byrne said Air New Zealand stood to gain directly from the painful restructuring of Qantas which could take years.

The Australian airline would be unlikely to reinstate direct services from Auckland to the US in direct competition with Air New Zealand, Jetstar could throttle back on growth in the domestic market here and Air NZ's Virgin Australia investment was likely to prove even more valuable.

Virgin Australia - 24.5 per cent owned by Air New Zealand - has played a big role in inflicting damage on Qantas' stranglehold of the Australian domestic corporate market, previously critical to help make up for big losses in its long-haul division.

Qantas chief executive Alan Joyce renewed his attack on Virgin Australia, saying the Australian domestic market had been distorted by current aviation policy, which allowed Virgin Australia to be majority-owned by three foreign government-backed airlines (Air NZ, Singapore and Etihad) - yet retain access to Australian bilateral flying rights.

"Late last year, these three foreign-airline shareholders invested more than A$300 million in Virgin Australia at a time when, as Virgin Australia reported, it was losing money. That capital injection has supported continued domestic capacity growth by Virgin Australia despite its growing losses."

Joyce said Virgin Australia Group had increased capacity into the domestic market at more than twice the rate of Qantas since July 2011 and as a result the total domestic profit pool has been shrunk from more than A$700 million ($752 million) to less than A$100 million.

Speaking just before the release of the Qantas result, Air New Zealand chief executive Christopher Luxon said the primary objective of his airline's investment in Virgin Australia was access to the Australian domestic market, which is five times the size of this country.

Claims Air New Zealand was a state-backed airline were "a little bit offensive", he said.

"We act under the corporations law in the interests of all our shareholders, we have an independent chairman. This is a commercially run business and the reason for investing is not to hurt Qantas but to get exposure to the Australian marketplace."

Luxon said the contrasting financial fortunes showed his airline was capable of competing with any carrier in the world.

Virgin has a cost base reportedly 17 per cent lower than Qantas but has suffered heavy losses battling for market share and is expected to announce a half-year loss of around $50 million.

Luxon said he was comfortable with Virgin's position.

"I will go on to the board in the next couple of months. We're all very confident that that business can be profitable and will be profitable."

Joyce said Qantas would do everything in its control to overcome some of the toughest market conditions it had ever faced.

The airline has appealed to the Australian government for help, with options including a debt guarantee to cut borrowing costs and the relaxation of ownership rules to allow more foreign investment - if an investor can be found. Qantas formed a partnership with Emirates last year but the Middle Eastern airline has ruled out buying in.

In 2011 Joyce grounded the Qantas fleet during an industrial dispute and will now face more speculation about his future.

- NZ Herald

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