The future of Australasian aviation is in play again, with Air New Zealand (ANZ) the focus of new attention as the possibility of arch rival Qantas buying a stake emerges.

But the airline, striving to rebound from last year's near-collapse, is keeping its strategic options open as it simultaneously talks about selling a stake to Qantas, unveils a new business plan, prepares to raise capital and ponders a bold move into the Australian domestic market.

Qantas approached ANZ about buying an equity stake. According to local reports, it could be trying to acquire the interests of Singapore Airlines (SIA) and/or BIL International in ANZ, buying directly from New Zealand's government, or hoping to pick up shares from the rights issue ANZ plans later this year. New Zealand law would limit Qantas to a 25% holding.

The Australian carrier denies it seeks management control, but New Zealand tourism and business leaders and some politicians are concerned. New Zealand competition lawyers predict any Qantas purchase could face regulatory scrutiny. If Qantas gained a seat on ANZ's board, giving it a voice in management and access to strategic information, lawyers warn that New Zealand competition officials would scrutinise the deal closely.

While talking with Qantas, ANZ has unveiled plans that could make it a stronger competitor within New Zealand and across the Tasman Sea. It plans by 27 October to drop domestic business class and in-flight meals and encourage more online bookings. It has not explained how this scaled-down service would differ from its no-frills unit, Freedom Air, which also flies and will continue to fly domestic and trans-Tasman routes.

With its launch of this domestic service change, under the working title Air New Zealand Express, the airline also plans to boost Freedom Air's trans-Tasman presence and add full service flights on its own long-haul routes to Japan, Hong Kong and the USA.

Analysts generally applaud this domestic and trans-Tasman shift to a discount model, but with two concerns: whether business travellers will revolt and migrate to Qantas, and whether Virgin Blue and/or a proposed discount start-up named Jump will enter New Zealand and squeeze ANZ with their lower costs.

ANZ has also set its long-proposed rights issue at NZ$189 million ($90 million). The date is not fixed, but it is scheduled for later this year. New Zealand's government has already committed to contribute NZ$150 million, leaving the NZ$39 million balance for other shareholders. SIAand/or BIL International, which together own 10%, have not said if they will participate.

Depending on how talks go with Qantas, ANZ is also looking at the domestic Australian market. Its aim there is not to replace its former subsidiary Ansett on all routes, but to recapture the highest volume behind and beyond gateway traffic. Interlining accounts for 15% of Australia's domestic traffic. ANZ claims it has been worst hit in the Adelaide and Canberra markets, two cities it does not serve.

The Star Alliance is encouraging this move. At the recent Star meeting, members voiced concern about the Ansett vacuum and Star's need for an Australia presence. Virgin Blue can offer interlining and has signed a codeshare with United Airlines, but it is more interested in point-to-point traffic. There is local speculation that SIA might launch a third Australian airline, but ANZ's limited entry looks more likely.

Source: Airline Business