Virgin Blue on course for a Kiwi landing despite battle of giants

By MATHEW DEARNALY

Budget airline Virgin Blue - still vowing to touch down in this country within a year - says travellers would be stung by a Qantas-Air New Zealand share tie-up.

The commercial head of Sir Richard Branson's Australian subsidiary, David Huttner, said yesterday that many people were telling Virgin Blue it would have an easier time battling just one competitor rather than two.

"But we would be hypocritical if we supported this lessening of competition," he said from the airline's Brisbane base.

Virgin Blue first expressed an interest in New Zealand after the demise of Qantas franchise-holder Tasman Pacific, and the ensuing rush by Qantas and Air New Zealand budget subsidiary Freedom Air to fill the vacuum on main trunk domestic routes.

The airline lodged a 20-page application with the Government in May last year to fly on both transtasman and domestic routes, but ran into bureaucratic turbulence because it was a British-registered operation.

Then the collapse of Air New Zealand-owned Ansett Australia meant Virgin Blue became pre-occupied with competing with Qantas to fill the void left in Australia.

It has been a royal dog-fight, with Virgin Blue making a flurry of complaints against Qantas. One has led to legal action by the Australian Competition and Consumer Commission over alleged "capacity dumping" between Brisbane and Melbourne.

Even so, Virgin Blue claims to have quadrupled business in its second year of operation, to four million passengers by last month, to grab 20 per cent of the Australian domestic market for its fleet of 21 Boeing 737s.

Despite the frenetic activity over there, Huttner said his airline has never taken its eye off the ball on this side of the Tasman and fully intends flying here within a year - whether or not Qantas is allowed an Air New Zealand shareholding.

Although it has yet to lodge a new application, he expects few licensing difficulties now that Virgin Blue has become registered as an Australian airline which can claim operating rights under the single transtasman aviation market.

The newcomer will be unable to service more than a handful of routes at first, however, and Huttner predicts passengers flying elsewhere will end up being "belted" by Qantas and Air New Zealand with high fares to bankroll attempts to shut out Virgin Blue.

He sees Air New Zealand's decision to take Freedom Air's fleet of four 737s out of domestic service and redeploy them on routes from New Zealand's three main centres to Brisbane as a pre-emptive strike against Virgin Blue's home base - and a clear signal that a deal with Qantas is close.

Virgin Blue has already started its own lobbying here. Its efforts have included a call by Huttner on the Commerce Commission last month to outline concerns about its rival's allegedly predatory pricing in Australia, as well as talks with this country's tourism, airport and Government officials.

The Travel Agents' Association seems unfazed by the scare tactics, with president James Langton voicing confidence that the commission will never allow competition to be destroyed.

But a tourism industry source who did not want to be named feared Qantas-appointed board members may question the more than $20 million spent annually by Air New Zealand to promote this country's attractions in overseas markets.

New Zealand analysts opposed to a Qantas stake in Air New Zealand fear it will take considerable time for Virgin Blue to offer much of an alternative to travellers if the two established players work together to tie up Tasman routes.

Simon Botherway, of Brook Asset Management, says he has little doubt an Air New Zealand-Qantas "monolith" will use its combined might to ensure Virgin Blue is only ever a bit-player.

Consumers' Institute director David Russell acknowledges a concern about the time it may take for Virgin Blue to establish itself here, but remains confident it will be a significant controlling factor against excessive prices.

The higher the fares charged by Qantas and Air New Zealand, the easier it will be for Virgin Blue to flourish, while the Commerce Commission will stand guard against any blatant rorts.

Recent history could offer some clues. Qantas was an Air New Zealand shareholder in 1996 when it warned the commission of a possible 33 per cent fare hike on domestic routes here if Air New Zealand was allowed to buy half of Australian-owned Ansett Holdings.

The commission eventually allowed the purchase, but only after Rupert Murdoch's News Corporation agreed to buy Ansett New Zealand to ensure that Air New Zealand would be unable to exert undue influence over its only significant domestic competitor.

Some analysts believe the subsequent collapse of Ansett New Zealand's successor - Tasman Pacific - may make the commission all the more risk-averse if Qantas comes before it with an application to buy into Air New Zealand.

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