Virgin Blue rethinks plans to enter NZ

Virgin Blue is rethinking its plans to enter the New Zealand market if a Qantas-Air New Zealand equity deal is announced today, the Australian budget airline says.

"There will be no real competition after this," said Virgin's head of commercial operations, David Huttner.

"You'll have a virtual monopoly across the Tasman, Qantas will be dictating the shots, I'm sure. We've seen Qantas' behaviour here in Australia when it comes to utilising capacity to squeeze out competition, and we've seen what's been done with Freedom Air, for example, in the past to impact on Kiwi (Air)."

Air NZ is expected to announce at midday that Qantas, its fiercest rival, is to take a 25 per cent stake in the 82 per cent government-owned airline.

Mr Huttner told National Radio that if competition watchdogs in New Zealand and Australia approved the deal, Virgin would have to question what protection there was for consumers and tourism operators.

He said Virgin Blue had seen New Zealand as its first international destination and had had a team visiting New Zealand airports last week, but that was now up for question.

Asked whether Virgin would be interested in buying Qantas New Zealand if the Commerce Commission forced Qantas to divest that interest, Mr Huttner said it was not.

"Qantas NZ is a loss-making operation, a very traditional airline that Qantas has run for the past year to force Air NZ to the negotiating table."

Air NZ's subsidiary Freedom Air was a well-run operation and if it was put in Qantas' hands it could be used in an "aggressive way" but at this stage, Virgin Blue was only interested in objecting to the deal on the grounds of public interest, he said.

However, Jane Boyle, an aviation writer for the Australian Financial Review, said an alliance between Qantas and Air NZ could provide substantial revenue and cost benefits, as well as strategic benefits for both companies.

"Qantas has indicated that it plans to build an Australasian airline alliance and New Zealand would obviously provide an important plank of that. For Air NZ, it rebuilds links with the Australian market after Ansett collapsed."

Shareholders Association chairman Bruce Sheppard said he was not in favour of the deal.

"Quite clearly Qantas are Air NZ's major market competitor. They are an aggressive competitor, they have been a very effective competitor over a long period of time and a leopard doesn't change its spots."

Mr Sheppard told National Radio that Air NZ's brand might survive, but over years the airline would be subsumed into Qantas.

"The issue is the strength of that brand and its robustness in serving New Zealand."

As to whether the capital Air NZ needed could be raised in New Zealand, Mr Sheppard noted its last rights issue was under-subscribed but it was on the back of the contentious decision to buy Ansett Australia.

"Ensuring its survival...would be a better rights issue to gain support but I suspect that raising capital from the public would be difficult. Not impossible, but difficult."

However, he questioned whether Qantas would be prepared to provide the capital to its major competitor.

"More likely Qantas with a 25 per cent shareholding could act as a frustrator."

Air NZ shares are on a trading halt until midday pending a media briefing.

The Dominion Post reported today that the deal could be part of a bigger regional plan involving Singapore Airlines.

The paper said Singapore Airlines, which holds 4.5 per cent of Air NZ, was understood to be a potential buyer of British Airways' 17 per cent stake in Qantas, which BA wants to sell.

- NZPA