£200m Qantas alliance shot down

REGULATORS have grounded plans by Australian airline Qantas to buy a stake in Air New Zealand, claiming an alliance between the carriers would hurt competition.

Qantas, 19%-owned by British Airways, wants to take a 22.5% stake in the Kiwi airline at a cost of NZ$550m (£200m).

But the Australian Competition and Consumer Commission said the deal 'would be highly anti-competitive and offer little benefit to the Australian public'.

This the ACCC's second rejection of the tie-up. Its New Zealand counterpart, the Commerce Commission, also opposes the deal.

Shares in Qantas fell 4% to A$3.38 (£1.38) on the news, with Air New Zealand off 13% to NZ$0.52 in Wellington.

The airlines said in a joint statement that they would appeal to the Australian Competition Tribunal.

Qantas chief executive Geoff Dixon said the ACCC was 'either ignoring or underestimating the significant structural changes facing airlines around the world'.

Analysts said only consumers would benefit from the watchdog's decision and even that might be short term.

'There will be pressure on Air New Zealand because there will be more competition than otherwise,' said Ian Myles, an aviation analyst with Macquarie Equities.

He said approval of the alliance would have been better news for Virgin Blue.

The discount carrier, part of Sir Richard Branson's empire, on Monday announced plans to set up a subsidiary airline to operate in New Zealand.

'We're serious and it will go ahead whether there is a Qantas-Air New Zealand alliance or not, but the size of the operation will depend on the alliance,' said Virgin Blue's head of communications and strategy, David Huttner. 'It will depend on the terminals available to us.'

The ACCC's decision suggests that finding terminal space will be difficult. However, many predict the real loser will be Air New Zealand.

It was rescued from near-collapse by a government bailout two years ago and says its survival as a full-service carrier is at stake because of the competition threats from Virgin Blue and newcomer Emirates Air.

Dixon and Air New Zealand chief executive Ralph Norris said the two airlines were 'confident that the Australian Competition Tribunal review process affords us another opportunity to present our full case for the alliance and we remain confident that we can achieve a positive outcome'.

A final decision by the New Zealand authorities is expected by the end of the month. However, the deal requires approval from both countries.