It's effectively a takeover

John Thomson National Asset Management

Qantas says it will replace its recently collapsed franchise operator in New Zealand, Tasman Pacific, with a national service that it owns and operates directly.

The plan to re-enter New Zealand would be made possible by the Impulse deal because it would free up some of Qantas' aircraft for operations on other routes.

As an added bonus, such a deal would remove one of its low-cost competitors at home in Australia.

Virgin Blue

The other low-cost operator in Australia is Sir Richard Branson's Virgin Blue.

Virgin Blue is popular with passengers

Having already established itself in Australia, New Zealand is on Virgin Blue's radar as well

But its ambitions have so far been scuppered by the Kiwi transport minister Mark Gosche who has defined Virgin Blue as a UK operator.

As such, Sir Richard's carrier is not given automatic rights to fly between the two countries under the Open Skies agreement.

The issue could be resolved if Virgin Blue was to float in Australia and New Zealand, Mr Gosche said.

"If it was 50% owned in New Zealand and Australia, [ownership] would not be an issue," he said.

Sir Richard is deeply unhappy about the situation.

"I've stumped up the money, but it's an Australian company running an Australian airline in Australia, and exactly the same would apply in New Zealand," he said in an interview with Television New Zealand.

"We will continue to lobby."

Takeover

In Australia, as part of its deal with Qantas, Impulse will stop flying its own flag.

Qantas is rebuilding its presence in New Zealand

Its fleet of eight Boeing 717-200 aircraft and 13 Beechcraft 1900D aircraft will be leased to Qantas.

And according to Qantas chief executive Geoff Dixon, the Impulse discount fares were unviable and will begin to rise.

Qantas will also lend money to Impulse to buy back its shares from institutional shareholders and provide working capital.

"It's effectively a takeover," said National Asset Management senior dealer John Thomson.

Market opportunity

Sir Richard sees the deal more as an opportunity than as a threat.

Sir Richard Branson has been told to stay out

"Suddenly in Australia, with the disappearance of Impulse, a whole lot of routes have reared their heads in the last 24 hours," said Sir Richard Branson in a Television New Zealand interview.

Virgin Blue seems determined to keep attacking the duopoly traditionally operated by Qantas, which is 25% owned by British Airways, and by Ansett Australia, a subsidiary of Air New Zealand.

And so might the Australian regulator. The competition and consumer commission in the country has noted that a deal with Impulse would give Qantas a 52% market share and said it will study the proposed alliance as a matter of urgency.

Shares in Qantas rose 25% following news of its plans to link with Impulse.

The rise was welcomed by shareholders who had seen the stock slide fast as the airline's profits have been hit by the tough competition, the weak Aussie dollar and by a global economic slowdown.