Air NZ-Virgin Blue Decision Looms

Air New Zealand believes that both Australian and New Zealand regulators could decide by the end of this week if a proposed partnership with Virgin Blue can go ahead.

Air New Zealand CEO Rob Fyfe says he is “hopeful that we will get a decision” by then from the Australian Competition and Consumer Commission (ACCC), and he is also optimistic that a ruling will be made this week by New Zealand’s Ministry of Transport.

The two airlines want to cooperate closely on routes between the two countries. The ACCC has already issued a preliminary rejection of the deal, but the carriers have since modified their proposal and the ACCC has signaled that it is reassessing the deal.

Fyfe’s comments were made at a Star Alliance event in Queenstown, New Zealand on Dec. 13. Also at the event was John Borghetti, who heads the Virgin Blue Group. While Virgin Blue is not aligned with Star or any other alliance, Fyfe said Borghetti was invited because it was a good opportunity to meet the CEOs of the Star carriers.

If the partnership does get approved, then code-share arrangements between the two will “represent opportunities for other Star Alliance partners that may be able to benefit from the relationship with Virgin Blue,” Fyfe says.

Star Alliance CEO Jaan Albrecht says the grouping is interested in adding an Australian partner. Australia “is a white spot” for Star, and the alliance has been “exploring opportunities” there, Albrecht says. He notes that many carriers classified as low-cost carriers are now shifting their business models to be more compatible with network carriers – a description that would fit Virgin Blue.

Albrecht says any recommendation to add an Australian member would have to come from Air New Zealand, as the major Star carrier in the region.

Meanwhile, Fyfe concedes that it is “probable” that his carrier will see further delays in the delivery schedule for its Boeing 787-9s as a result of the program’s latest reassessment. However, he says Boeing has not yet provided any notification of further delays.

Before the most recent 787 problems, Air New Zealand was already facing a three-year delay in its 787 orders. They were originally scheduled for delivery in late 2010, but are now slated for late 2013.

“Clearly there is frustration for us in those delays, as it is restricting some of our plans in terms of retiring older aircraft and in terms of some of the new routes we’re interested in,” Fyfe says.

There have been compensation discussions between Air New Zealand and Boeing, although Fyfe would not reveal details. However, Fyfe says no matter how much compensation is received, the delivery delays still create significant strategic risk for the carrier. Many of the routes Air New Zealand serves are too thin to support more than one carrier, so if the 787 delays result in another airline entering a market that Air New Zealand was contemplating, then it could get locked out of that market.

Fyfe is still convinced the 787 will be a “game-changer” for Air New Zealand. “There is no lack of enthusiasm [for the aircraft], we just want to get our hands on it,” he says.