Air pact won't scuttle Virgin Blue's float plans

The discount carrier's head of commercial operations, David Huttner, dismissed concerns about the prospect of up to nine months of uncertainty in the region's aviation industry while the airlines seek to convince regulators to pass the deal. ``The float is based on the assumption the company is well run and has a competent management team," he said.

``The Qantas/Air New Zealand deal really has no impact on the float one way or another."

Virgin has said the alliance has caused it to defer plans to launch a trans-Tasman service as well as an operation within the domestic New Zealand market. Such an expansion was viewed as an important, and saleable, growth option for Virgin.

Mr Huttner said there were still many potentially profitable routes available in Australia and Virgin also was examining international routes, including Bali, Fiji, Tonga, Samoa, Papua New Guinea and East Timor.

Virgin will send a team in the next two weeks to lobby the New Zealand Government to reject the Qantas/Air NZ pact, which it regards as anti-competitive.

Qantas shares eased 9c to $3.85 and Air New Zealand 2c to 46c, reflecting concerns that the deal might not proceed after the Australian Competition and Consumer Commission expressed its early opposition. The airlines must demonstrate that the potential public benefits of the alliance outweigh any resulting decrease in competition.

``We've got to wait to see what their arguments are on that," said Ian Myles, transport analyst at Macquarie Equities.

Jason Smith at Salomon Smith Barney said the proposal appeared ``extremely beneficial" to both carriers but investors will await the outcome of the regulatory approval process before acting. ``The market is likely to be coy given the alliance could take six to nine months to be approved and it is still unsure what changes will be needed to get it through" he said.

Some analysts suggested the carriers may make concessions to encourage another carrier, such as Virgin Blue or Singapore Airlines, to start operating in the trans-Tasman market.

The analysts, who ascribed probabilities of the deal being approved ranging from 50/50 to 70/30, were generally positive on the deal, with Merrill Lynch reconfirming a ``buy" recommendation on Qantas and a $5.20 price target.

JP Morgan, which expects the regulators to approve the alliance at an acceptable cost in the form of concessions, raised its earnings targets for Qantas by 12 per cent in 2003-04 and by 25 per cent in 2004-05.