Qantas ready to swoop on profitable routes

By JIM EAGLES and DANIEL RIORDAN

These are worrying times for anyone who remembers the days when New Zealand had only one domestic airline and inflight entertainment consisted of watching passengers wrestle with unopenable packets of cheese.

The domestic aviation industry on both sides of the Tasman seems in chaos. Qantas New Zealand, which as Ansett NZ brought competition to our airways and introduced a new era of service, has closed its hangars and is in receivership.

Ansett Australia, once its parent company, has had part of its fleet grounded because of maintenance problems and is causing problems for new owner Air New Zealand.

Where could it all end? Not, surely, with a return to a domestic aviation monopoly and the era of cheese packet service?

Fortunately, that seems unlikely.

The dramas on both sides of the Tasman, while they are occurring simultaneously, are quite separate.

Ansett Australia's difficulties will certainly have an impact this side of the ditch but it is likely to be restricted to Air NZ's financial returns and capital structure.

The losses incurred as a result of the grounding, along with problems of higher fuel costs, lower loadings and increased competition, have already been a factor in the warning that Air NZ will not make money for some time.

In addition, the need for capital expenditure on the ageing Ansett Australia fleet may well force the Government to allow Singapore Airlines to raise its investment in the national carrier above the cap of 25 per cent.

Ansett's setback has probably also helped the two new cut-price airlines, Virgin Blue and Impulse, to establish themselves in Australia far quicker than would otherwise have been the case.

But none of that should have any effect on the level of domestic air service New Zealanders enjoy.

That depends on whether Air NZ continues to face competition on its domestic routes and all the signs are that it will.

The most likely scenario is that Qantas Airways, having decided the best financial option was to let its New Zealand franchise collapse, will now jump in to pick up the best pieces.

Qantas Airways will probably confine itself to the more profitable main trunk routes - say Auckland, Wellington and Christchurch - rather than trying to match the extensive network offered by Qantas NZ owner Tasman Pacific.

The focal point of the service will most likely be provided by Qantas Boeing 737s that will fly the Tasman, carry domestic passengers down the backbone of the country, and return to Australia, effectively looping the New Zealand and Australian markets.

If that happens, existing provincial airline Origin Pacific - and possibly some other small operators - would be used to provide a feeder service in much the same way as Air NZ uses its subsidiaries Eagle Air and Air Nelson.

Qantas NZ's predecessor, Ansett NZ, made money only three years out of 13.

However, insiders at Tasman Pacific, which owned the Qantas NZ franchise, have told the Business Herald the airline was making healthy profits on some of the routes it flew.

Management was reportedly slow to take full advantage of this by shifting planes off unprofitable routes, and it refused to abandon persistently loss-making services.

Qantas, starting with a clean slate, would not have to fly unprofitable routes.

Its cost structure would also be lower than Tasman Pacific's. It could use some of its existing staff, marketing and service infrastructure, and fly more efficient Boeing 737 jets, compared with Ansett's increasingly outdated Whisper jets.

Qantas has another good reason to stay in the New Zealand market - the intensity of its struggle with Air New Zealand in the wider Australasian market.

And although we may be small, New Zealand is still Qantas' second-biggest market.

Aviation analysts say it would hurt the Australians too much to see Air NZ back in a monopoly position, lifting at will a market share already estimated at 60 per cent.

The thought of Qantas passengers flying into New Zealand then switching the Kangaroo for the Koru for the domestic legs of their journeys is not particularly savoury to Qantas executives.

In the unlikely event that does not happen, the void could be filled by a budget operator.

That would put an end to 14 years of head-to-head bells and whistles competition on main routes and make New Zealand's market more like Australia's. There Virgin Blue and Impulse have grabbed market share from Qantas and Ansett and forced down ticket prices.

Former Air New Zealand chief executive Jim Scott believes competition between our airlines has been about as real as that between our petrol companies.

He reckons consumers would do better with a real choice between a high-priced full service carrier and a lower-cost carrier using new, high-technology aircraft.

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