Editorial: Benefits to consumers up in the air

After Australia's competition watchdog poured cold water on an alliance between Air New Zealand and Qantas, airline analysts fell over themselves to predict a fares war on the transtasman route. El cheapo holidays in Melbourne and Maroochydore seemed just around the corner. So far, however, the reality has proved less cause for euphoria. Indeed, there was a sense of anticlimax when no-frills Virgin Blue finally announced its arrival here. An introductory $99 one-way fare between Christchurch and Brisbane will soon be supplanted by a fare structure that seems no real advance on that offered by Air New Zealand and Qantas. Passengers could be excused for asking, is this as good as it gets?

The answer is, probably not. But that depends largely on what Virgin plans for its Pacific Blue operation. The company has a strong brand and a reputation for sticking at things until they work. For starters, however, it has merely dipped its toe in the market. Perhaps that reflects prudence, given a set of somewhat unusual circumstances. Perhaps it also acknowledges the unknown, given the lid has yet to be finally slammed on the planned tie between the two big transtasman operators.

Some commentators have taken Virgin's reticence to indicate a lack of commitment to the route - and to the New Zealand market. It is to be hoped that is not so. Certainly, the company has become a key player in Australia, claiming 30 per cent of the domestic market. Clearly, however, its case there was much helped by Ansett's demise. Indeed, its executives' brave words about seizing the same share of our domestic market would have more resonance if the Air New Zealand-Qantas alliance did proceed, and Virgin were able to take over Qantas' airport facilities.

As it is, Virgin seems unwilling to become involved in three-way competition in a domestic market that traditionally has struggled to accommodate two main carriers. Instead, Pacific Blue is likely to cherry-pick destinations that it believes are being under-served. Already, it has identified Rotorua as an area of potential. The decision to base itself at Christchurch also points to an inclination to tie into major tourist destinations. That, again, suggests the potential for consumer benefit may, initially at least, be limited.

Another strategy will, however, be required for the transtasman route. Those skies, as well as having a strong Air New Zealand and Qantas presence, are crossed by a plethora of other airlines, including Emirates, Thai Airways and Lan Chile. For all these, New Zealand is an add-on to the Australian main event, and they are happy to offer cheap deals to fill aircraft. Already, the increasing presence of such carriers has been a factor in forcing down fares. As has the fact that the world's most profitable airlines now tend to be discount carriers. Thus, Air New Zealand has introduced its Tasman Express service, and Qantas has responded in kind, just in time to take some of the sting out of Virgin's preliminary announcement.

Some travel companies insist the discount fares offered by the big two will go lower. Competition, and excess capacity, offered by the likes of Emirates and the arrival of Pacific Blue suggest this will be so. That impulse would strengthen further if Qantas fulfilled Air New Zealand's fears of a war of attrition. The level of dread may be overstated. There must be a suspicion that the rhetoric has been spurred by the need to demonstrate a unite-or-die imperative in the face of rejection by competition watchdogs. Unfortunately, no one can say with any certainty where it will end.

Healthy competition may yet become debilitating attrition if operators choose the Tasman as the new aerial battleground. Pacific Blue and Qantas could afford to stay in the dogfight. Air New Zealand may run out of ammunition. And that is a worry.