VB & Air NZ unveil a trans-Tasman alliance

The carriers say the alliance would involve a broad free sale codeshare agreement; a revenue allocation agreement for all trans-Tasman flights and a joint trans-Tasman network planning and revenue management team; collaboration on future routes; reciprocal frequent flyer scheme benefits; and a lounge cooperation agreement.

The two airlines will also aim to closely align their trans- Tasman product offerings, but will continue to compete on the New Zealand domestic market, and a joint statement makes clear that the“agreement is also not a signal of intention by Air New Zealand or Virgin Blue to take a shareholding in each other. ” “Simple moves like integrating schedules and capacity, allowing customers to book multi-sector journeys on one code, providing reciprocal loyalty scheme benefits and reciprocal lounge access for qualifying customers will be a compelling proposition for leisure and business travellers on both sides of the Tasman,” said Air New Zealand CEO Rob Fyfe, who asserted that seat capacity on the trans-Tasman under the alliance would grow more quickly than would otherwise be the case.

“This market stimulation is likely to allow Air New Zealand and Virgin Blue to harness the alliance benefits to start new routes or additional frequencies,” said outgoing Virgin Blue Group CEO Brett Godfrey.

The airlines say they have been working on the trans- Tasman proposal for “some months”, and have filed applications with the Australian Competition and Consumer Commission and the New Zealand Ministry of Transport seeking approvals for the deal. Godfrey said he thought regulatory approval would take in the order of six months.

Air New Zealand and Virgin Blue are among seven airlines currently competing on the trans- Tasman. Their alliance would help give Virgin Blue’s Pacific Blue operation scale on the trans- Tasman, and help Air New Zealand combat the competitive threat offered by the Qantas Group’s full service (mostly Jetconnect operated) and low cost Jetstar services on the market.

“In its largest market, Air New Zealand is caught in limbo between very aggressive Jetstar pricing and the much higher prices that Qantas is able to levy as part of its corporate dominance and wider network. Although Jetstar has a relatively small market share on Tasman routes, it is able to undermine Air New Zealand’s pricing very effectively, driving its yields down in response,” notes a Centre for Asia Pacific Aviation (CAPA) analysis.

“This is an excellent example of how the Qantas doublebrand is able to attack a market, although Air New Zealand is unlikely to appreciate its finer theoretical points. ” CAPA suggests the alliance could be “a first step in what might surely be a wider relationship. . . ” which would be “a real game changer”. “That may take another few months. But look to [new VB CEO] Mr Borghetti to be extremely enthusiastic in attacking every inch of his former employer’s territory. ” The Air NZ/VB trans- Tasman tie-up proposal is the first to emerge since Qantas’s two failed Air NZ alliance attempts were proposed in 2002 and 2006.