Virgin's low-fare act flies into turbulence

By FRANCESCA MOLD and SCOTT MacLEOD

The promise of rock-bottom air fares could vanish if discount airline Virgin Blue is forced to change its plans for operating in New Zealand.

Virgin has sent the Government a 20-page application to fly on both transtasman and domestic routes.

Transport Minister Mark Gosche said yesterday he would consider the proposal and seek urgent meetings with the Australian Government and Virgin officials.

The Australia-based airline has stumbled in its bid to fly passengers across the ditch because it is British-owned, meaning that it falls outside the open skies deal between Australia and New Zealand.

Mr Gosche in previous talks with Virgin outlined ways it could fly the Tasman route, including changing the airline's ownership set-up, developing different rights to allow the deal to go ahead or obtaining an exemption from both governments.

Virgin wants the exemption. Its commercial head, David Huttner, said Virgin would consider alternative plans if its application failed.

But he warned that such changes would be costly for consumers.

"Alternative structures raise costs. If we raise costs, we raise fares and that doesn't suit anybody," he said. "Why would anyone want us to do that. We need both the transtasman and domestic routes to keep fares low."

The airline has hinted that it could offer short-term airfares as low as $60 one-way from Auckland to Christchurch.

Virgin's owner, British entrepreneur Sir Richard Branson, has indicated a possible sell-off within two years of half his 100 per cent stake, which would let it meet the open skies criteria.

"We'd like to be given the authority to fly because we believe low fares are good for New Zealand and the issue of whether Richard has a British passport shouldn't be a hindrance," Mr Huttner said.

"Yes, it is true our majority shareholder is from Britain, but there is nothing about this airline that is British."

The application ends speculation that Virgin Blue was not serious about flying in New Zealand and that it was taking advantage of the publicity over the death of Qantas New Zealand.

Mr Gosche said he was looking forward to talks with Virgin.

But Acting Prime Minister Jim Anderton appeared less enthusiastic about Virgin's application. He said he did not believe that Mr Gosche had felt the application had been as definitive as expected.

But Mr Huttner said Virgin had argued its case well and had provided plenty of information.

He said even the suggestion that Virgin could enter New Zealand had benefited the country because Air New Zealand had since announced direct flights between Auckland and Dunedin, and had also indicated more interest in servicing tourist destinations such as Queenstown and Rotorua.

The Australian Financial Review said Air New Zealand was considering sending its no-frills subsidiary Freedom Air to fly Australian domestic routes.

Air New Zealand spokesman Cameron Hill said it was "technically possible" for Freedom to fly in Australia under the open skies deal.

Top Air NZ executives yesterday started visiting Rotorua, Queenstown and other centres. The airline may lease or buy new aircraft and rush them into service in time for the ski season.

Meanwhile, there was little cheer for some of the 1100 staff who lost their jobs when Qantas New Zealand went bust.

The national secretary of the Engineering, Printing and Manufacturing Union, Andrew Little, said it could be six weeks before they received their superannuation.