'Leader' dismisses airfare challenge

By LIAM DANN and IRENE CHAPPLE

Air New Zealand says it will not be drawn into a price war following the arrival of Virgin Blue and moves by Qantas to offer cut-price fares.

Yesterday's announcements did not present any immediate threat to business, said Air New Zealand chief operating officer Andrew Miller.

After months of talking about it, Virgin Blue finally unveiled plans for a transtasman service yesterday.

It will offer flights to Brisbane from Christchurch under the brand Pacific Blue. It is launching an introductory one-way fare of $99 but plans a regular price of $189, plus taxes and levies.

A few hours earlier Qantas announced cut-price fares from as low as $205.22.

"There were no surprises," Miller said. Pouring cold water on consumer hopes of a price war, he said Air New Zealand would not respond to either competitor.

"We're the market leader," Miller said.

"We're confident that the fare structure we have in place is sustainable."

Air New Zealand first offered $189 one-way fares in August.

Neither announcement had any direct impact on Air New Zealand's argument that it should be allowed to form an alliance with Qantas, Miller said.

In making its case, Air New Zealand had been referring to long and medium threats from big international carriers, he said.

Aviation analysts yesterday described Virgin Blue's first step into the New Zealand market as modest.

Some were sceptical about the airline's commitment to offer a fully fledged rival service.

But Virgin Blue head of communication and strategy David Huttner pointed critics to his company's record in Australia.

"If you don't think we're serious, just ask Qantas, they didn't think we'd last a year," he said.

Pacific Blue did have expansion plans but was still negotiating with Qantas and Air NZ over access to domestic terminals.

"While Christchurch will be our base for starting, we hope to be flying out of Wellington and Auckland in the not too distant future," he said. "We're not putting a time frame on it but we are looking at more growth in 2004."

He said Virgin was aiming to expand the market, not just take market share.

"We take up 30 per cent of the market in Australia and we see no reason why we can't do the same thing in New Zealand."

Airline analyst Bruce McKay, of Saffron Capital, played down talk of a price war but said he was optimistic this was the beginning of three-way competition.

It was hard to say whether Pacific Blue would still be here in five years but it was certainly making the right noises, he said.

Australian aviation analyst Peter Harbison said it was inevitable we would now see the airlines posturing and "shaping up outside the pub" given the strategic issues they were facing.

Attempts by Air New Zealand and Qantas to get approval for an alliance had overshadowed events this year, he said.

The Australian Competition and Consumer Commission rejected the alliance application last week.

Under normal circumstances Qantas would have matched Air New Zealand's cut-price fares as soon as they were announced in August, Harbison said.

But a Qantas official spokesman said the timing of the fare announcements had nothing to do with the Australian watchdog's rejection.

Qantas had simply taken the opportunity to introduce a simpler fare structure, he said.

Tim Brown, spokesman for airport investment company Infratil, which has opposed the airline alliance, was sceptical about the extent to which yesterday's announcements represented a new era of competition.

"The critical point is the scale of commitment to a market," he said. "Qantas has announced no additional capacity and Virgin has announced one aeroplane a day from Christchurch to Brisbane. So, in the greater scheme of things, is there any actual real substance for the consumer? I don't think so."