Qantas responds to Air NZ economies

By CATHY ARONSON transport reporter

Qantas has registered its domestic airline in New Zealand on the eve of Air New Zealand's new budget flights.

The Australian airline operating in New Zealand has traded in its Australian licence and registered with the Civil Aviation Authority to become a New Zealand registered airline, called JetConnect..

The move is seen by financial analysts as a ring fencing exercise to prepare Qantas domestic flights for sale, possibly a condition to be imposed by the Commerce Commission before it allows the Australian airline to buy the rumoured 25 per cent stake in Air NZ.

While Qantas may get tax benefits for registering in New Zealand, it has freely operated under the open-skies agreement with Australia since it flew into the domestic market last year to fill the gap left by its failed namesake, Qantas New Zealand.

The airline will not explain its decision to go through the costly exercise of registering the company, pilots and planes in New Zealand. The bill from CAA alone was $60,000 for the three months of paper work.

Qantas spokesman Simon Rushton would say only that it was always the airlines intention to register in New Zealand.

Financial analysts believe it could help appease Commerce Commission concerns about the future of domestic competition if Qantas and Air NZ join forces.

It could demonstrate that Qantas would not up and leave the domestic market to Air NZ or that it would sell to an independent operator.

In recent months the competition has been fierce between the airlines as Qantas puts pressure on Air NZ's homefront and lifeline to the world.

Qantas has already matched Air New Zealand's new fares, at least 20 per cent cheaper, for its budget one-class service, Air NZ Express, due to take to the skies tomorrow.

Qantas added another Boeing 737 to its fleet of four on Friday and from November 7 will have two extra flights a day between Auckland, Wellington and Christchurch.

It plans to add two more planes and more routes by the end of the year. Qantas will keep its business class and meals but will continue to assess the market.

Air NZ chief executive Ralph Norris told his shareholders at the annual meeting on Tuesday that the success of its domestic operation was vital.

"We are strengthening our business from the core out - starting with the points where increasing competition can do most damage to the company's financial performance."

To afford its cheap fares Air NZ has scrapped its meals and business class in return for a biscuit, coffee or tea and one-class service.

It has cut 30 of 300 short-haul flight attendants but has held off further cuts as it increases flights between Christchurch, Rotorua, Queenstown and Dunedin.

To make more on each ticket it has dropped travel agent commission and offered discount tickets online, causing some travel agents to book with Qantas, which still pays commission.

Travel agents association president James Langton said travel agents had not lost business to online bookings despite Air NZ saying 50 per cent of its express bookings had been online.

Air NZ is relying on 20 per cent more people catching planes to make the fares profitable.

Mr Norris said early survey results showed that 56 per cent of New Zealanders were more likely to travel after the introduction of the cheaper fares.

Benefits and drawbacks of cheap fares

* One class replaces business and economy, increasing the number of seats from 122 to 136.

* Coffee, tea, water and biscuits provided (replacing meal and beverages).

* Passengers can take their own cold meals and drinks on board (but no alcoholic beverages).

* Prices are on average 20 to 28 per cent cheaper on main routes.

* Some fares are up to 60 per cent cheaper, such as super saver Auckland to Queenstown if booked on the internet or with Air NZ direct.

* Dropped travel agent commission.

* 50 per cent of express bookings have been online, up from fewer than 5 per cent before the launch of express.

* November bookings have increased by 25 per cent on last year.

* Some cheap fares have sold out for November and December. For example, Auckland to Christchurch $69 one-way Smart Saver has sold out.

But other one-way fares, costing $79 to $109 are still 1 available.

* Two-thirds of the express fares come with "use it or lose it" rules that exclude refunds or re-scheduling, compared with about 20 per cent at present.

* Hold luggage allowance has been cut by 5kg to 20kg.

* Stricter control on the size of carry-on luggage.