Pacific Blue quit NZ domestic routes after $20m loss

Photo / Glenn Jeffrey

Pacific Blue NZ, the local units of Richard Branson's Virgin Airlines, chose to abandon New Zealand's domestic routes after tough competition and tighter market conditions left it with a near-$20 million loss.

The airline incurred a net loss of $19.8 million for in the 12 months to June 30, according to financial statements filed with the Companies Office.

That prompted it to pull the plug on internal flights in October last year and instead focus on international short- and medium-haul routes between Australia, New Zealand, the Pacific Islands, and South East Asia.

At the time Virgin Blue Group of Airlines chief executive John Borghetti said the move was part of a strategy aimed at "removing capacity from services which are underperforming" and lifting capacity in areas with "strong revenue potential."

One of the major factors behind the New Zealand unit's underperformance was tight competition on domestic routes from rivals Air New Zealand, with all three airlines slashing prices over the year to attract domestic travellers, which had dwindled as the effects of the global financial crisis battered New Zealand's economy.

Pacific Blue's financials show revenue for the financial year was flat at $281.8 million compared to the previous year, while costs rose by 8.3 per cent to 309.3 million, leaving the airline with a pre-tax operating loss of $25.3 million - more than 23 times higher at the previous year's gross loss of $1.1 million.

The airline's parent, Virgin Blue, subsequently entered into an alliance with Air New Zealand on trans-Tasman routes, which has won approval from Australian and New Zealand antitrust authorities after the initial proposal was shot down amid accusations it would stifle competition.

Regulators were won over by promises from Air New Zealand and Virgin Blue to maintain capacity, code share on Tasman and connecting flights and offer reciprocal frequent flier and lounge arrangement.