Wirraway
4th Feb 2004, 12:39
Tues "Australian Financial Review"
Airlines join Tasman dogfight
Date February 3rd, 2004
Even cheaper flights and tougher competition are on the trans-Tasman horizon, reports Tansy Harcourt.
Australia's aviation industry and flying public still bear the scars from the bitter price war that grounded two airlines . Now the battle is moving across the Tasman.
Ticket prices for trans-Tasman flights have slumped about 20 per cent in the past few months as airlines such as Qantas, Air New Zealand, Lan Chile and Emirates bolster traffic flow on the notoriously unprofitable route.
Capacity from the eastern states to Auckland has surged 40 per cent in the past year and the launch of flights last Thursday by Virgin Blue from Australia to New Zealand signals that even cheaper flights and tougher competition are on the horizon.
``It's already vicious,'' Virgin Blue chief executive Brett Godfrey said at the launch of New Zealand arm Pacific Blue last week. ``You've seen capacity increases by the incumbents . . . but because of our cost base, no one will be able to undercut us.''
What is at stake is not so much profit on the trans-Tasman route although that would be a bonus but snagging market share by having the most complete network.
The thinking is that a tourist from the UK, for instance, who wants to visit both Australia and New Zealand, stopping off in Singapore, is more likely to book the whole trip through one airline if it has the network. Otherwise they may just shop around for the cheapest fares for each leg.
The tourism industries in both countries are lapping up all the attention. The number of New Zealanders who travelled to Australia in 2003 is expected to have topped the record set during the 2000 Olympic year, reaching 840,000.
Traffic in the other direction topped 2 million for the second year running.
Australia's hosting of the Rugby World Cup and the popularity of the Lord of the Rings trilogy, set in New Zealand, helped lure tourists, but the real attraction was price.
With the cost of a weekend return airfare to New Zealand dropping from $1000-plus a few years back to below $300, investors and airlines expect passenger volume to rise exponentially.
``Competitive pricing is making this kind of international travel more accessible to people that wouldn't otherwise be able to afford it,'' Tourism New Zealand regional manager Bruce Lahood said.
Some industry pundits believe popping over to New Zealand for the weekend will become as common and affordable as weekend trips from London to Europe.
For people a bit more cashed up, owning a ``weekender'' across the Tasman is increasingly popular, according to the tourist bodies.
``At the rates tickets are being sold for, there is a lot of demand,'' Australian Tourist Commission spokesman Andrew McEvoy said.
The airfare war has been sparked in part by the Australian Competition and Consumer Commission's decision last year to block a proposed $NZ550 million ($485 million) alliance between Qantas and Air NZ. The two airlines are now fighting separately for market share.
Last year, as Air NZ mounted a case to have the tie-up approved, it warned that it could collapse if forced to compete head to head with Qantas and any new entrants in NZ and on the trans-Tasman route.
But Air New Zealand chief executive Ralph Norris has done an about-face, warning that there will be a ``blood bath'' and declaring that ``somebody is going to get a bloody nose, [but] we won't be the first to fall over''.
Unfortunately for the airline, there is a lot more at stake.
Qantas is far more cashed up than its Air NZ, which was recently bailed out by the NZ government.
For Australia's biggest airline, the route is more about securing follow-on passengers than pocketing big profits.
Airlines such as Emirates, Royal Brunei, Lan Chile and Thai Airways fly the route to use planes that would otherwise be sitting on the tarmac in Australia or New Zealand, so their cost-base analysis is slightly different.
Then there is Virgin, which is expanding its budget carrier model, used to great success in Australia, to flights across the Tasman.
With prices as low as $NZ99 for a one-way special introductory fare with Virgin's Pacific Blue, and Qantas advertising return tickets for as little as $304, there is no doubt there will be fallout.
But with memories of the collapses of Ansett and Compass still fresh, both for the airlines and customers, prices are not likely to remain at unprofitable levels.
Deutsche Bank recently predicted that ticket prices for a return trip across the Tasman could stabilise at about $300 before taxes and charges, or $400 all up.
===========================================
Airlines join Tasman dogfight
Date February 3rd, 2004
Even cheaper flights and tougher competition are on the trans-Tasman horizon, reports Tansy Harcourt.
Australia's aviation industry and flying public still bear the scars from the bitter price war that grounded two airlines . Now the battle is moving across the Tasman.
Ticket prices for trans-Tasman flights have slumped about 20 per cent in the past few months as airlines such as Qantas, Air New Zealand, Lan Chile and Emirates bolster traffic flow on the notoriously unprofitable route.
Capacity from the eastern states to Auckland has surged 40 per cent in the past year and the launch of flights last Thursday by Virgin Blue from Australia to New Zealand signals that even cheaper flights and tougher competition are on the horizon.
``It's already vicious,'' Virgin Blue chief executive Brett Godfrey said at the launch of New Zealand arm Pacific Blue last week. ``You've seen capacity increases by the incumbents . . . but because of our cost base, no one will be able to undercut us.''
What is at stake is not so much profit on the trans-Tasman route although that would be a bonus but snagging market share by having the most complete network.
The thinking is that a tourist from the UK, for instance, who wants to visit both Australia and New Zealand, stopping off in Singapore, is more likely to book the whole trip through one airline if it has the network. Otherwise they may just shop around for the cheapest fares for each leg.
The tourism industries in both countries are lapping up all the attention. The number of New Zealanders who travelled to Australia in 2003 is expected to have topped the record set during the 2000 Olympic year, reaching 840,000.
Traffic in the other direction topped 2 million for the second year running.
Australia's hosting of the Rugby World Cup and the popularity of the Lord of the Rings trilogy, set in New Zealand, helped lure tourists, but the real attraction was price.
With the cost of a weekend return airfare to New Zealand dropping from $1000-plus a few years back to below $300, investors and airlines expect passenger volume to rise exponentially.
``Competitive pricing is making this kind of international travel more accessible to people that wouldn't otherwise be able to afford it,'' Tourism New Zealand regional manager Bruce Lahood said.
Some industry pundits believe popping over to New Zealand for the weekend will become as common and affordable as weekend trips from London to Europe.
For people a bit more cashed up, owning a ``weekender'' across the Tasman is increasingly popular, according to the tourist bodies.
``At the rates tickets are being sold for, there is a lot of demand,'' Australian Tourist Commission spokesman Andrew McEvoy said.
The airfare war has been sparked in part by the Australian Competition and Consumer Commission's decision last year to block a proposed $NZ550 million ($485 million) alliance between Qantas and Air NZ. The two airlines are now fighting separately for market share.
Last year, as Air NZ mounted a case to have the tie-up approved, it warned that it could collapse if forced to compete head to head with Qantas and any new entrants in NZ and on the trans-Tasman route.
But Air New Zealand chief executive Ralph Norris has done an about-face, warning that there will be a ``blood bath'' and declaring that ``somebody is going to get a bloody nose, [but] we won't be the first to fall over''.
Unfortunately for the airline, there is a lot more at stake.
Qantas is far more cashed up than its Air NZ, which was recently bailed out by the NZ government.
For Australia's biggest airline, the route is more about securing follow-on passengers than pocketing big profits.
Airlines such as Emirates, Royal Brunei, Lan Chile and Thai Airways fly the route to use planes that would otherwise be sitting on the tarmac in Australia or New Zealand, so their cost-base analysis is slightly different.
Then there is Virgin, which is expanding its budget carrier model, used to great success in Australia, to flights across the Tasman.
With prices as low as $NZ99 for a one-way special introductory fare with Virgin's Pacific Blue, and Qantas advertising return tickets for as little as $304, there is no doubt there will be fallout.
But with memories of the collapses of Ansett and Compass still fresh, both for the airlines and customers, prices are not likely to remain at unprofitable levels.
Deutsche Bank recently predicted that ticket prices for a return trip across the Tasman could stabilise at about $300 before taxes and charges, or $400 all up.
===========================================