Editorial: Pacific Blue - it was good while it lasted

Photo / Brett Phibbs

In hindsight, airline passengers may well look back on the period between 2007 and 2010 as a golden age for travel in New Zealand. It was too good to last.

Pacific Blue has announced it will quit the domestic market after totting up losses running into the tens of millions.

So ends what will probably be the final attempt to impose three-way competition on a market that has traditionally struggled to find room for two main carriers.

If Virgin, a company with deep pockets and a reputation for sticking to a plan, cannot make things work, others are unlikely to be willing to try.

Pacific Blue was careful to limit the damage to itself in a market it must have known would be marginal.

It flew only between the main centres, plus Dunedin and Queenstown, after suggesting earlier that it may choose to cherry-pick other destinations it believed were under-served.

But a limited flight schedule was no indicator of its influence. On its arrival, it was credited with lowering domestic fares by about 20 per cent.

It is naive to think its departure will not mean increased prices, despite the soothing noises coming from Air New Zealand and Jetstar, the budget subsidiary introduced by Qantas last year. Reduced competition is bound to have consequences.

The failure of Pacific Blue probably owed as much to the adaptability of its rivals as to the size of the market. They did not allow it to profit from the no-frills approach that has made Virgin a key player in Australia, where it also benefited from Ansett's demise.

Indeed, that policy, based more on low operating costs than on offsetting reduced revenue from cheaper fares, was not a novelty when Pacific Blue arrived on these shores. In 2002, Air New Zealand started along the same path when it dispensed with meals and business class on domestic flights. Belatedly, Jetstar came to occupy the same, overcrowded territory.

It is worth recalling that Pacific Blue's arrival in this country was not greeted with unbridled enthusiasm. Fears were expressed about its effect on Air New Zealand. Questions were raised about the continuation of an open skies policy. Happily, protectionist impulses were resisted and Pacific Blue was welcomed in the interests of travellers.

The survival chances of the Australian airline might have been much enhanced if Air New Zealand had received the approval of competition watchdogs to forge an alliance with Qantas. Happily that, too, was denied, and Pacific Blue was denied Qantas' airport facilities, as well as having to compete against two adroit rivals.

Pacific Blue says it will now use some of its freed-up capacity to add five flights to existing transtasman services. But it will surely struggle to survive on that highly competitive route without the benefit of a linkage to domestic services.

Indeed, before Monday's announcement, Pacific Blue and Air New Zealand were already seeking approval to join forces across the Tasman. In that context, the pair account for a combined 55 per cent of traffic, with Qantas and Jetstar having much of the rest.

The proposed codeshare tie-up would allow Pacific Blue and Air New Zealand to book passengers on each other's flights, share revenue and collude on scheduling, fares and capacity.

As with the planned alliance between Air New Zealand and Qantas, this must be rejected. Pacific Blue served domestic air travellers well, but its presence was, ultimately, unsustainable.

Its operations across the Tasman are equally problematic unless underpinned by an anti-competitive arrangement.

As always, the interests of the travelling public must be paramount in any regulatory decision. If that means the total retreat of Virgin from this market, so be it.