Developing more long haul routes and bringing more visitors to this country are among the opportunities for Air New Zealand in owning a substantial stake in Australia's Virgin Blue, says its chief executive Rob Fyfe.
Discussing the airline's A$145 million ($188.9 million) purchase of 14.9 per cent of Virgin Blue at a press conference this morning, Fyfe said it was a long-term investment.
"We think there are opportunities for us to extend our relationship with Virgin and we'll be looking at those opportunities in coming months, subject to any approvals required from competition authorities,'' he said.
Last year the two airlines won regulatory approval to work together on trans-Tasman routes and Fyfe said there was scope to extend their relationship.
He was coy on specifics, citing commercial sensitivity, but indicated long haul routes would be a focus.
"Just as there are routes which will be difficult to make work unless we have more than one airline working together, we also think there are long haul markets that may be developed more quickly if we could work in co-operation with an airline from Australia. Assuming we can get competition approval it may allow us to accelerate development of some long haul routes.''
Working together could also bring more tourists from Australia, he said.
"In terms of inbound tourism I think New Zealand performs relatively poorly out of Australia.
"It's as easy to fly to New Zealand from Australia as it is to fly to other states, yet when you look at percentage of Australians we're able to attract over here I think it's relatively disappointing. Part of the reason for that is if you want to fly from anywhere other than the eastern seaboard ports that we fly from, there's only one operator that can offer you a seamless journey, which is the Qantas group. I think if we can bring much more competition to that market we can attract a lot more tourists to New Zealand from Australia, so that's very exciting for us.''
Tourists taking in both Australia and New Zealand would be a key target, said Fyfe, as a deeper alliance would allow more seamless travel to customers.
Virgin Blue chief executive John Borghetti had been informed last night of Air New Zealand's move and was supportive, said Fyfe.
"It's a strong endorsement of Virgin Blue and their strategy and he likewise sees Air New Zealand as a potentially very valuable partner for Virgin Blue.''
Borghetti's arrival as CEO last May was instrumental in Air NZ's decision, Fyfe told BusinessDay.
"We certainly have become increasingly comfortable and confident in Virgin's strategy since John Borghetti has arrived as CEO.
"His decision to address the underperforming parts of the business, to develop the higher value parts of the business, we think are exactly the right strategies for Virgin Blue.
"It's seeing those strategies executed, or the formative stages of that execution occur, is what has given us the confidence to back the current direction of the business and the current management of the business,'' he said.
In particular, Virgin Blue's decision to shut down its loss-making New Zealand operation had made it easier to buy into the company, he said.
"As the market has evolved over the last four or five years, Qantas has created Jetstar, they've become the dominant player in the region, and to some degree if you're only operating in one of the markets - either Australia or New Zealand you get marginalised by the carrier that's operating across the region as a whole. So both Air New Zealand and Virgin have suffered as a result of Qantas's dominance in terms of constraining their growth opportunities.
"So it's become more and more obvious this should happen. But you have to be confident before you look for opportunities to partner - you have to be confident the cultures are compatible and the leadership and the strategy is compatible.''
Reaction
NZ Funds chief investment officer Michael Lang said Air New Zealand decision to take a cornerstone shareholding in Virgin Blue would cement the airline as the dominant partner in their recently approved trans-Tasman alliance.
"A shareholding in Virgin Blue gives Air New Zealand access to a much larger population in a way that does not require a large capital outlay," Mr Lang said.
"I expect as a result of this purchase to see a number of changes to Virgin Blue which will result in the new alliance taking market share from Qantas."
Fyfe had found a way to continue the airline’s expansion plans in a way that did not require a full takeover of another carrier and would not require additional capital from shareholders, Lang said.
Air New Zealand shares fell 4 cent to $1.40 this morning. But NZ Funds valued Air New Zealand’s shares at over $2 a share. On the Australian stock exchange Virgin Blue shares rose in early trading, adding 1 cent, or 2.3 per cent, to A45 cents.
A spokesman for Deputy Prime Minister Bill English said it was good to see Air New Zealand building positively on its strategic position.
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