Confusion rules in crowded skies

By DANIEL RIORDAN aviation writer

Want to know where the Australasian airline industry is headed? Roll the dice.

Qantas is contemplating Air NZ, Singapore Airlines (SIA) is eyeing Qantas as the flying kangaroo's 22 per cent owner British Airways glances to the exit, Virgin Blue is already linked operationally with United and still keen to fly transtasman, and within New Zealand, Star Alliance carriers are still searching for an Australian domestic presence and their rival oneworld carriers are holding their breaths through it all.

Governments on both sides of the Tasman have played, and will continue to play, crucial roles in the industry, along with their competition regulatory bodies, the Australian Competition and Consumer Commission and the New Zealand Commerce Commission.

Add to the mix the interests of Star (Air NZ, SIA and United) and oneworld (Qantas and British Airways) and no wonder the experts are befuddled.

Here is the considered opinion of an eminent thinktank, the Centre for Asia Pacific Aviation in Sydney:

"It is virtually impossible even to guess at what will come out of this massively complex equation of commercial and political ingredients - other than that something MUST happen. The current situation is highly unstable, with many unmet needs."

In their latest monthly report, centre directors Peter Harbison and Ian Thomas argue that without structural change a repeat of the industry's woes in another couple of years is virtually certain, once airlines in the Asia-Pacific region lift their capacity and resume their cut-throat battle for market share.

They say the most interesting stoush is between Qantas and SIA, with access to Australia's domestic market the jewel in the crown for SIA.

SIA has been keen to get a foot in Australia for years, and first tried buying into Qantas. When British Airways stymied that, SIA had a go at Ansett, only to be rebuffed by Air NZ. When SIA switched to plan B and tried lifting its stake in Air NZ, it was a victim of the New Zealand Government's prevarication and Qantas' spoiling tactics.

Now SIA sits uselessly on a diluted 4.5 per cent stake in an effectively renationalised Air NZ and is forced to look elsewhere for its Australian entry.

This could be in its own right, say Harbison and Thomas, or more controversially by taking a cornerstone stake in Qantas.

Suggestions out of Canberra that Qantas' foreign ownership cap will be lifted grow stronger by the month. Foreign ownership is now restricted to 49 per cent of Qantas, and a single airline cannot own more than 25 per cent.

Meanwhile Virgin Blue, with politically well-connected Patrick Corporation as its new 50 per cent shareholder, is still deciding whether to become a two-class carrier or stick with its successful one-class, discount model. One-class carriers are not welcome in the alliances, but with two classes, Virgin Blue suddenly becomes a prime candidate for meeting Star's Australian feeder needs.

And let's not forget that Qantas and SIA are exploring the potential for low-cost, direct international flights with their subsidiaries Australian Airlines and SilkAir.

Whatever each airline decides will be affected by decisions made at the same time by their competitors, partners and Governments.

The final nudge will come from "the unpredictable, but assertive and intrusive hand of Australia and New Zealand's competition authorities".

If Qantas took a stake in Air NZ - the Australian carrier is understood to be seeking 25 per cent but neither party is commenting publicly - it would raise hairy questions, say Harbison and Thomas.

* Competition authorities in both countries, but especially New Zealand, would be concerned, and at the very least impose tough conditions.

* Not only would the watchdog worry about the loss of direct competition between the two airlines, but if Qantas left oneworld and joined Star as part of its move on Air NZ, Star's dominance of the region's skies would be too great for comfort.

* If Qantas joined Star, it would have to review its relationships with its oneworld partners, especially British Airways, and starve oneworld of an Australian domestic feeder partner.

* If Qantas stayed where it was and Air NZ left Star for oneworld, SIA's entry into the Australian domestic market on behalf of its Star partners would become inevitable.

* If Qantas stayed in oneworld and Air NZ stayed in Star, some of the short-term competition issues would be sidestepped, but the situation would arguably be unsatisfactory for both alliances and possibly for both airlines.

Finally, it is intriguing to note what Harbison and Thomas have to say about the notoriously chauvinistic aviation sector.

They conclude that the main effect of the "tribulations" of the past 18 months has been "an entrenched nationalism and the return of a more conservative approach to national airline ownership".

All of which will be small comfort to those cringing at the thought of Qantas taking a piece of Air NZ.

nzherald.co.nz/aviation

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