Virgin to start NZ flights as rivals slash fares

Sarawak Tribune - Thursday, 18 September 2003

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MELBOURNE - A fare war has broken out on flights between Australia and New Zealand, with Qantas Airways Ltd and Air New Zealand slashing prices by up to a third and Virgin Blue saying it will fly the route from February.

News on Wednesday that Virgin, Richard Branson 's discount carrier, would begin flights between Brisbane and New Zealand's Christchurch comes a week after Australia's competition watchdog ruled out an alliance between Qantas and Air New Zealand as anti-competitive.

Virgin will offer an introductory one-way fare of NZ$99 (US$56.90), compared with reduced prices of NZ$199 one-way on Air New Zealand and A$450 return (US$296. or. NZ$508.50) on Qantas.

Qantas shares rose 0.9 percent to A$3.27 in late trade, in line with the wider market, despite the looming competition from Virgin. Fund managers said Virgin's entry, under the brand name Pacific Blue, had been expected and cheap fares could help spur overall demand.

"The market is focusing on the fact that it might trigger more activity for air travel, which would be good for Qantas," said Paul Xiradis, a fund manager with Ausbil Dexia. But shares in Air New Zealand - rescued from bankruptcy by a government bailout in 2001 - fell 1.8 percent to NZ$0.54.

Other analysts said the prospect of more competition could help Qantas resurrect its Air New Zealand alliance proposal.

"If Virgin can build up to 15 percent of the market and then you've got Emirates in there as well, if they prove to be sustainable competitors, then there is the possibility that Qantas and Air NZ might take their deal to the regulator again," said Bruce Low, transport analyst at ABN AMBO.

Dubai-based Emirates recently began flying to Auckland from Dubai as an extension of its daily flights to Sydney and Melbourne.

The Australian Competition and Consumer Commission last week rejected a NZ$550 million ($316 million) plan for Qantas to take a 22.5 percent stake in Air New Zealand and for the two carriers to cooperate on scheduling and fares.

The two carriers would have more than 90 percent of the market between Australia and New Zealand, the regulator said.

Virgin Blue, which is half-owned by Branson's Virgin Group and half by Australian transport group Patrick Corp Ltd, began operating in Australia three years ago and now has about a third of the Australian domestic market.

Late on Tuesday, Qantas said it would cut fares on routes between Australia and New Zealand, ahead of a similar move by the New Zealand carrier. Australia's largest airline also axed business class on its New Zealand domestic services, following a similar move by Air New Zealand as part of a major revamp to climb back to profit.

Qantas, which last month posted its first-half-year loss since listing eight years ago, cut its Sydney-to-Auckland return fare by a third on its 111 flights to New Zealand each week.

Cheaper fares apply on travel after October 15 - two weeks before Air New Zealand kicks off a budget service that cuts average airfares on trans-Tasman routes by 20 percent.

"Clearly Air New Zealand's, and now Qantas's, sudden about face on airfares would suggest that they know that the days of gouging the travelling public are over," Virgin Blue Chief Executive Brett Godfrey said in a statement.

In a move similar to the airline's 2000 Australian launch, Pacific Blue will offer thousands of seats at cheap prices on its new fleet of Boeing Co 737-800 aircraft, the company said. - Reuters