The complex and ever-changing web of relationships in the global airline indus- try can often resemble a daytime soap opera. This has been particularly true in the Australasian market recently,
as breakups and new partnerships have produced
some dramatic shifts in the competitive environment.
Partners Air New Zealand and Virgin Australia
have announced they will be going their separate ways
in October, ending a sometimes turbulent marriage of
convenience. As this relationship ends, Virgin Australia
is developing ties to a new overseas ally that will boost
its access to the crucial Chinese market. Meanwhile,
Qantas and Emirates Airline—initially the proverbial odd
couple—are seeing their partnership evolve as it matures.
The split between Air New Zealand and Virgin Aus-
tralia represents the biggest upheaval in the region. The
pair had cooperated closely on routes between Australia
and New Zealand, which is one of the most important
markets for both airlines. The impending end of this ar-
rangement has caused the carriers to scramble to reposi-
tion as they prepare to face each other as rivals again.
The partnership has been in place since late 2010,
after regulators in both countries granted the pair permission to operate a “metal-neutral” joint venture in the
Australia-New Zealand market. This allowed them to
share revenue on these flights and coordinate scheduling
and pricing. Air New Zealand cemented the relationship by progressively acquiring a 26% stake in Virgin
Australia, which made it the largest shareholder in its
The deal was good for both parties—it allowed them
to offer a broader network with more frequency than
either could by themselves. However, eight years later
the partnership is about to come to an end. Air New
Zealand informed Virgin in April that it would not be
renewing the joint venture when its authorization expires in October.
Air New Zealand chief revenue officer Cam Wallace
noted that the dynamics of the Australia-New Zealand
market have changed since the alliance was introduced.
“The time is now right for each airline to focus on its
own objectives,” he said.
One example is Air New Zealand’s increasing focus
on Australia as a major source of connecting traffic for
its new routes to North and South America. This makes
it more of a competitor for Australian long-haul traffic,
which is not covered by the codeshare with Virgin.
Product differences were always an impediment to
a truly seamless joint operation, and Wallace said that
ending the partnership “will enable us to deliver a more
consistent customer experience by using our own fleet.”
In addition to these factors, relations between the two
partners have progressively deteriorated in recent years.
Air New Zealand and its CEO Christopher Luxon grew
frustrated with the performance of Virgin under CEO
John Borghetti, which led to Luxon withdrawing from
the Virgin board and Air New Zealand selling its stake in
Virgin in 2016. Some frequent flyer and lounge reciprocal rights were also wound back last year. Against this
backdrop, few were surprised when the pair announced
the end of their alliance.
The split has major ramifications for the Australia-New
Zealand market. The ink was barely dry on the breakup
notice when both airlines began revealing plans to reshape their networks to compete as individuals again.
AN AIR NEW ZEALAND
Airbus A320 and a Virgin
Australia Boeing 737-800