Could Air New Zealand and Virgin Australia merge? Air NZ responds to speculation

Air NZ and Virgin Australia have been close in the past. Photo / Supplied

Air New Zealand has responded to speculation of a merger deal with former alliance partner Virgin Australia.

The Kiwi airline said in an NZX statement "that it has not been approached, and is not in discussions with any parties, regarding a potential merger transaction".

The Australian today reported that Virgin Australia's (VA's) owner Bain Capital held recent discussion with Air New Zealand about a merger of the two airlines.

The two carriers were closely linked before, with Air New Zealand holding an equity stake of 19.9 per cent.

And the airlines had a close operating alliance before an acrimonious bust-up five years ago.

Both are now in recovery following the pandemic, and facing increased competition from bigger rivals.

A Virgin Australia said today: ''We are declining to comment on this matter.''

But The Australian quotes sources who said investment banks Jarden and Goldman Sachs were offering help on possible plans, including a deal with Australia's regional carrier Rex.

"Sources say that discussions have been held between New Zealand's national carrier and Virgin in recent weeks, although they do not suggest that the pair have necessarily progressed towards a deal at this stage," the Australian reported.

While Air NZ is playing down speculation, a market source here said closer relationships between the two airlines made sense as more carriers consolidate operations in a tough commercial environment while rebuilding ravaged balance sheets.

Virgin is yet to revive its transtasman network although flights to Queenstown are coming.

It is concentrating on the Australian domestic market where it has about a third of the market, well short of Qantas' share, as it rebuilds after falling into voluntary administration early in the pandemic. It was then bought by Bain Capital.

Air New Zealand also faces a renewed threat from Qantas on international flights with direct competition to its Auckland-New York route (which it is launching tomorrow).

Qantas will compete on the route from the middle of next year in a sign of the fraying of a "frenemies" code share and operating agreement in 2018.

Any merger between VA and Air NZ would require approval of the Government which holds a 52 per cent stake and would need to get the approval of competition regulators.

Harbour Asset Management's Shane Solly said there were examples of airlines merging around the world and he could see logic in VA and Air NZ getting closer.

This week giants Emirates and United Airlines - former foes - announced a code share deal which allows them to sell seats on each other's flights.