Air NZ and Virgin Blue will have an estimated 56% of air traffic across the Tasman if they’re granted regulator approval to team up. The alliance is set to give them a market strength both lacked when taking on Qantas on their own, which has 35%. Qantas launched Jetstar into the NZ domestic market while pulling its own brand out. The low-fare unit has made the Qantas group a more formidable competitor, with low-fare domestic flights able to link to the airline’s global destinations.

The two carriers now face a regulatory marathon, as those with memories of Air NZ’s aborted attempts at an alliance with Qantas in 2006 will recall. They are anticipating a six-month process. Virgin Blue CEO Brett Godfrey is forecasting an additional $A15m in annual sales will be generated by an alliance. Godfrey says “we go from the minority players in the market to slightly ahead.” For the airlines, the tie-up will ensure planes travel with fuller loads and help maintain marginal routes. Air NZ CEO Rob Fyfe says it will help underpin destinations such as Rotorua, which ideally would be a daily service.

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The carriers say the alliance, if approved, is unlikely to lead to an equity relationship, adding they see no conflict with Air NZ’s existing relationships under the Star Alliance. Paul Robertshawe, fund manager at Tower Asset Management, says “strategically, this is sound. They’re trying to lower the capital intensity and up the capacity on these routes.”

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