The on-again-off-again relationship between Air New Zealand and Qantas is back on, with the carriers announcing yesterday a comprehensive codeshare agreement for their routes across the Tasman Sea.

Both airlines will file shortly seeking authorization from the New Zealand Minister of Transport and the Australian Competition and Consumer Commission. Regulatory approval is expected to take approximately six months. The agreement replaces the more ambitious equity tie-up that ran foul of competition regulators in both countries in 2003.

Since then, Emirates has entered the market along with LCC Pacific Blue and Qantas LCC subsidiary Jetstar. Both Jetstar and ANZ low-fare offshoot Freedom Air are taking a larger slice of the market, leaving the premium parent carriers seeking ways to consolidate.

"This commercial agreement enables us to maintain network presence while realigning some of the current surplus capacity on the Tasman," Qantas CEO Geoff Dixon said. "We plan to develop a combined schedule that allows us both to better utilize aircraft and save costs."

ANZ currently operates 134 transtasman flights per week while Qantas has 84. There are eight airlines vying for the 5.4 million passengers flying across the Tasman and market load factor declined from 75% to 70% between 2003 and 2005. At the same time, capacity grew 39% but passenger growth lagged at 31%.

Under terms of the codeshare, Qantas will cease to be a holder of Redeemable Convertible Notes in ANZ. Qantas owns NZ$98 million ($59.7 million) of the notes, accounting for 4.2% of ANZ's share register if converted to ordinary shares. The holding was approved by the New Zealand government as the first step in the equity alliance proposed in 2003. ANZ will convert the note to debt and repay Qantas over four years as part of the negotiated transaction.