National carrier Air New Zealand and Australian budget operator Virgin Blue announced an alliance yesterday, signaling an intensifying battle with Qantas for dominance of the region’s market.
Air New Zealand shares traded flat at US$0.9898 after the announcement, while Virgin Blue slipped 3.4 percent to US$0.5319, before recovering slightly to be down 2.5 percent at US$0.5365 by early afternoon.
The deal, which requires regulators’ approval, includes code sharing on routes between Australia and New Zealand, collaboration on future route and product planning and frequent flyer program benefits.
Air New Zealand chief executive Rob Fyfe said if the plan is approved, it would be one of several measures to improve the airline’s competitive position in the face of Qantas’ bid for regional dominance, under its Qantas and budget airline Jetstar brands.
Air New Zealand and Virgin Blue said in a statement that the alliance would deliver cheaper airfares, increased flight frequency, better connections and expanded lounge access.
The airlines said the agreement was not a signal of intention by Air New Zealand or Virgin Blue to take a shareholding in the other.
The government owns a 75 percent stake in Air New Zealand and in 2001 gave the airline a NZ$1 billion (US$728 million) bailout.
The Center for Asia Pacific Aviation, an independent analyst group, said last week that an alliance between Air New Zealand and Virgin Blue in the market across the Tasman Sea would pose a concern for Qantas and Jetstar.
It noted that Air New Zealand needed to respond to being uncomfortably positioned about halfway between Qantas and Jetstar prices.
The center described Virgin Blue as a genuine low-cost carrier evolving into a full-service airline, while Air New Zealand was a full-service flag carrier becoming a low-cost airline.
“We believe we are well matched and the timing is good,” said Virgin Blue group co-founder and chief executive Brett Godfrey.
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