Air NZ's strategy of cutting capacity to remain profitable had worked up to the early part of 2009, the Centre for Asia Pacific Aviation (Capa) said in its 2009 Aviation Outlook.
"Whether this strategy can continue to keep the airline intact during what looks like being a prolonged downturn for the New Zealand economy will depend on just how long and deep that proves to be," Capa said.
"Unless there are more positive new developments for Air NZ, and with current consensus that recovery is unlikely before 2010, it seems likely that merger talks will again be on the table by the end of this year."
However, ABN Amro Craigs broker Chris Timms had his doubts about the centre's claim New Zealand's national carrier would merge with another airline.
"In short, no. Air NZ discussed this in February when we had them in for a briefing. They see little merit or synergies in consolidation but would consider closer code-share arrangements with other carriers.
"They may have a different view now, but I doubt it."
Air NZ's competitive position on the domestic routes had improved, with Qantas moving from four to three planes followed by the transition from Qantas to Jetstar.
Jetstar's routes and frequency indicated the premium end of the market would be left to Air NZ, he said.
On long-haul flights, Air NZ retained a virtual monopoly on most routes except for Hong Kong and Los Angeles, where it still had a 50%-plus market share.
In its April market report, Air NZ said yesterday it carried 971,000 passengers, down 5.7% from April last year.
The airline's capacity was reduced by 12.7% from last April and the group's passenger load factor increased by 4.5%.
The short-haul airline flew 4.7% fewer passengers in April. Air NZ reduced capacity by 7.3%.
Long-haul passenger numbers fell by 12% from the same month last year. Long-haul capacity was reduced by 16.3% compared with April 2008.
On the North American-United Kingdom routes, passenger numbers fell by 9%. On the Asia-Japan-UK routes, passenger numbers fell by 14.2%.
Air NZ said there had been passenger cancellations, primarily on Japanese routes, due to concerns about Swine Flu. At this stage, the financial impact on Air NZ was not material.
Capa said in its report that capacity reduction was the "unavoidable option" for Air NZ and the only way for the airline to protect its future earnings base.
That base was under relentless pressure from expanding long-haul carriers, such as Emirates, and short-haul low-cost carriers Pacific Blue and Jetstar, domestically, on the Tasman and in the Pacific.
Air NZ would be forced to cut back in the domestic market, as well as on international routes including the high-volume Australian market.
For the airline's majority owner, the New Zealand Government, which pumped in nearly $1 billion to save the airline after the failed Ansett involvement in 2001, the current state of affairs seemed like a reasonable outcome, Capa said.
Despite a more than 50% fall in its capital value, Air NZ appeared to have stabilised its financial position.
At the same time, the burden of growing the country's inbound and domestic tourism markets was progressively being shifted to other airlines.
"This has reduced the national carrier's risk and helped it refocus on the better-yielding corporate travel markets and niche long-haul services - the only strategy amid the current downturn.
"From here on, the risk is that Air NZ will become so marginalised in the current downturn and competitive upheavals that its returns and value will steadily diminish over time.
"If fuel prices begin an upward march again, the survival equation could dissolve."
