Tasman price war looms

By CHRIS DANIELS aviation writer

Expectations of a price war are building alongside a huge increase in transtasman airline capacity and Air NZ says big changes are needed if it is to continue making money.

The country's biggest travel agency, Flight Centre, says the arrival of Dubai-based Emirates, plus the expected October entrance of budget carrier Virgin Blue, means a good chance of discount fares and a price war.

Base fares could go as low as $100 one-way once Air New Zealand launches its new "express-style" service in October.

Air New Zealand chief executive Ralph Norris, in Australia at the weekend, has been talking up the benefits of an alliance with Qantas - and the risks posed by increased competition.

Norris told Business Sunday on Channel Nine that he expected Tasman ticket prices would fall as Emirates and Virgin Blue entered the market.

Unless "some significant changes" were made to the way Air NZ ran its Tasman service it risked "losing significant amounts of money", he said.

The first of Air New Zealand's 15 new Airbus A320 aircraft will go into service in October, which is when Virgin Blue is expected to start flying the route.

Norris said the new planes meant a 15 per cent reduction in operating costs.

Such savings were vital to Air New Zealand if it were to compete with Virgin Blue, which he said had applied for airport landing slots to be used from late October.

He said Air NZ was "prepared to work with them, enable them to access peak-time slots".

Virgin Blue, which originally said that the forced sale of Air NZ's Freedom brand was a necessary precondition to flying to this country, is now concentrating on getting what it says is fair access to airport facilities and slots.

The sale of Freedom Air is no longer as important to Virgin Blue, which says the establishment of a low-cost subsidiary by Qantas means it would make no difference.

Tourism Minister Mark Burton, speaking yesterday to a group of Dubai-based journalists, said that the arrival of Emirates was "very, very significant".

It was vital to the health of the tourism industry that New Zealand had a secure supply of airline seats in and out of the country. The addition of Emirates was especially welcome, as it was based in an emerging market - the Middle East.

Tourism NZ chairman Wally Stone said Emirates' "emphasis on high-end travellers was particularly pleasing" as it worked well with the target market - namely, high-end tourists.

Although the arrival of new, supposedly cut-throat competition on the Tasman may appear to threaten Air NZ, it also serves as good ammunition when it argues its case for a tie-in with Qantas.

Qantas wants to buy a 22.5 per cent stake in Air NZ and integrate all services operating to, from and within New Zealand, meaning anyone wanting to fly or send freight direct to the US would have to use a service provided by one of the two airlines.

New Zealand's competition regulator, the Commerce Commission, is holding a conference on the airlines' applications later this month. It expects to issue its final decision on the matter late next month.

If, as expected, the commission turns down the plan, the battle will then move to the courtroom.

Who flies Tasman

Air New Zealand/Freedom, Qantas, Emirates, Thai International, Polynesian, Lan Chile, Aerolineas Argentinas, Royal Tongan, Malaysian Airlines, Garuda, Royal Brunei (starting October), Virgin Blue (expected to start in October).