Stricken United Airlines to pull out of New Zealand

5.25pm

United Airlines, the world's second largest which a month ago filed bankruptcy proceedings in the United States, today announced it was pulling out of New Zealand.

United's 96 New Zealand employees will be made redundant, a spokesman for the airline said.

The last United flight will depart Auckland for Los Angeles on March 29, leaving New Zealand-US routes entirely in the hands of Air New Zealand and Qantas, currently already planning to share services to North America.

United's pullout, which follows withdrawals by other US carriers, Continental and American Airlines, in the last decade, may have implications for the Qantas/Air New Zealand deal.

The two airlines plan to have an effective monopoly in domestic services here and will control over 80 per cent of passengers across the Tasman. A monopoly to North America could make it more difficult to get their proposal past competition watchdogs on both sides of the Tasman.

Qantas has a daily flight to Los Angles and all other 29 North American flights will be flown by Air New Zealand.

While the pullout will aid Air New Zealand's profitability, it is also a blow for tourism in New Zealand as the plug is pulled on United's huge internal US network.

United, which like Air New Zealand is part of the global Star Alliance, said customers would be served by its other Star partners -- Air New Zealand, Thai Airways and Singapore Airlines -- via code share arrangements.

Today's announcement would have no effect on frequent flyer miles held by New Zealand-based customers, the company said.

Air New Zealand chief executive Ralph Norris said the announcement was news to him but not unexpected given United's financial strife.

He said he would not comment further until he met with United management when he and senior Air New Zealand executives returned from holiday in 10 days.

Contrary to earlier reports, United said it had been losing money on the daily Auckland-Los Angeles route and had been for most of the 17 years it had flown here.

United said it would work "diligently" to assist its employees with job placement and "realisation of benefits due to them".

"The decision to end service to New Zealand has been particularly difficult and painful for us, but we are pleased we are able to continue offering service to our customers through the Star Alliance," said Graham Atkinson, United's senior vice president -- International.

"We are making this difficult decision only after a very thorough analysis of the financial performance of the route in recent years and after making numerous attempts to improve its profitability," he said.

The number of passengers travelling between the two countries on all airlines had been fallng in recent years, while the number of available seats had been rising, United's Jim Brennan said.

"The result is that average fares between the US and New Zealand have decreased steadily over the past two years and our operations to New Zealand have become unprofitable."

In 2002, United rerouted its service to Melbourne via Sydney instead of Auckland, making more seats available between New Zealand and the US. It also introduced the first ever non-stop service between North America and New Zealand with new Boeing 777 aircraft.

While these changes substantially improved the profits on the route "it continues to fall short of United's profitability needs".

Customers holding tickets on United flights after March 29 have been told to contact United's reservations offices so they can be booked on Air New Zealand flights.

Air New Zealand boosted its services to Los Angles in November.

UBS Warburg New Zealand equities analyst Timothy Ross noted that the Commerce Commission was concerned with domestic issues and had no jurisdiction on who flew in and out of the country.

"Theoretically, the Qantas deal should not be contingent on who is flying in and out of New Zealand just as long as there are no barriers to airlines wanting to do so," he said.

"It will leave them with an effective monopoly, but it is only a monopoly if there are barriers to entry."

Mr Ross admitted the chances of another North American carrier coming here were slim given the lack of profits made on the route. He cited Northwest Airlines as the most likely prospect.

He said if Qantas and Air New Zealand colluded to push prices up then it would become profitable for another airline to enter the market.

A spokesman for Auckland International Airport said losing seven of the 36 flights weekly would not have serious ramifications for the airport company. Flights were running near capacity at present and Air New Zealand was likely to add extra services, he said.

- NZPA