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New Zealand travellers are being promised a price war as budget carrier Virgin Blue prepares a long-awaited assault on the domestic air market.
The Australian airline co-founded by British tycoon Sir Richard Branson is softening up the New Zealand market for a big publicity splash tomorrow.
It says it will announce details of routes and a long-term strategy aimed at bringing "affordable fares and competition" to the New Zealand aviation market.
Although the airline is giving little else away - such as where it will start flying - a newspaper advertising campaign started today by its transtasman subsidiary Pacific Blue promises the chance "to be a jetsetter on a backpacker's budget".
The development has drawn a swift reaction from Air New Zealand, which vowed yesterday to defend its patch with its own budget fares.
Sydney aviation analyst Jason Bloom, of Deutsche Bank, said Virgin Blue's entry into the Australian domestic market and the creation by Qantas of budget operator Jetstar led to a 20 per cent cut in domestic airfares there between 2002 and 2004.
Air NZ will not say whether it will follow the Qantas example by setting up a low-cost domestic airline to fight Virgin Blue.
But it raised the possibility in discussions with staff in May, as one of three or four growth plans it was considering.
Short-haul group general manager Norm Thompson said moves to be unveiled next week when the airline reported its annual financial results would "herald a new era for low-cost, efficient and comfortable domestic air travel".
Corporate communications manager Tracey Palmer said Air New Zealand remained committed to giving customers everyday low fares, as well as promotions such as the $1 domestic fares offered to celebrate the first anniversary in July of its short-notice "grab-a-seat" deals.
She said the airline had made no secret of having conducted a deep and exhaustive review of its transtasman and domestic operations over the past few months.
Although Air NZ dropped domestic fares by up to 26 per cent in January, and is matched in many instances on the limited domestic routes operated in New Zealand by Qantas, travel agents are delighted by Virgin Blue's proposed entry to the market.
Flight Centre general manager Rick Hamilton said it would be a terrific boost for New Zealand travellers and tourism.
"Increased competition can only be a good thing for New Zealand travellers, who have been demanding more flight availability," he said.
He also expected it to make Virgin's Australian and Pacific routes more accessible to New Zealanders.
"Virgin Airlines is a low-cost carrier that has revolutionised Australia's domestic and international air transport networks with a highly competitive, 'no frills' but fun service."
Although some industry commentators expect Virgin Blue to concentrate on "leisure" travellers, Mr Hamilton believed business customers would value the airline's high standard of on-time performance.
The timing of the announcement has also taken some observers by surprise, as Virgin Blue is busy in Australia preparing to meet fresh domestic competition from Singapore-owned Tiger Airlines and intends starting long-haul operations soon to the United States.
Now Australia's second-largest airline, after Qantas, with about 30 per cent of the domestic market, Virgin yesterday reported an almost doubling in annual profits to A$216 million.
It acknowledged that higher costs would offset more revenue growth this year as it set up new services in the US and New Zealand.
Mr Bloom said Virgin Blue had ordered a fleet of new 100-seater Embraer jets to expand its Australian operation.
This type of aircraft could also be used for a wide range of operations in New Zealand, including flights to the tourist centres of Queenstown and Rotorua as well as on the main trunk routes between Auckland, Wellington and Christchurch.
Auckland aviation analyst Rob Mercer, of Forsyth Barr, said Virgin Blue needed to make enough aircraft available to compete with Air NZ on the frequency of flights as well as fares.
He said Qantas had too few aircraft in this country's domestic market to do that.
He believed Air NZ would be quick to rise to the new competition.
