KEY POINTS:
Airline industry analysts are sceptical about the chances of a new low-cost airline starting up here after a United States-based aviation investor this week announced plans to set up a rival domestic airline called KiwiJet.
Air New Zealand investors were unfazed yesterday and the company's shares rose to a fresh high of $2.85 on news it was also considering launching a low-cost carrier.
Staff were told in a memo leaked to the media that a low-cost carrier was one of three or four growth initiatives being considered by the company as part of a strategic review.
Forsyth Barr aviation analyst Rob Mercer said he believed Air NZ could successfully run a low-cost brand alongside existing services and grow the market.
The key was to ensure it did not cannibalise the lucrative business market where passengers paid for full-price tickets at peak travel times.
Any secondary service would have to be run at non-peak times and target the leisure market.
Mercer saw little chance of success for a new entrant such as KiwiJet taking Air NZ on head-to-head on its main routes.
Air NZ had a lot of capacity and the ability to match cheap fares without taking any serious hit to its revenue. "It's a difficult market to compete in," Mercer said.
But Jason Bloom, a Sydney-based analyst for Deutsche Bank, said he thought the market here was too small for Air NZ to run a low-cost carrier as well as its own brand.
"Their domestic operation is pretty much a low-cost carrier anyway. Meals have gone and they've even taken the biscuit off," he said. "Whacking on a couple of 737s and rebranding them isn't going to save them a lot of money."
The airline had a major strategic review under way and had to look at all these things but was unlikely to proceed with the plan.
If KiwiJet did get off the ground, Air NZ could just take them on head on and compete on price.
"It would be tough for a new entrant to make money in," Bloom said.
"They would react to ensure they didn't lose market share. They've always done that."
Bloom said the leak of the staff memo would not have done the airline any harm in terms of unsettling any potential competition.
In Australia, when budget airline Tiger announced plans to enter the market, Virgin announced quickly it was looking at a secondary low-cost brand.
Florida-based aviation investor Patrick Weil said on Wednesday he had $27 million backing to set up a low-cost carrier here.
He has since told the Southland Times he wanted to buy the local arm of Qantas but a lot depended on the outcome of the takeover bid for that airline.
