30,000 Kiwis scoop up cheap airfares

An NZPA report says that Kiwis have embraced the chance to spread their wings, flocking to buy cut-price air fares announced by New Zealand’s newest domestic airline Pacific Blue, but Air New Zealand is unimpressed.

Pacific Blue Airlines spokesman Adrian Hamilton-Manns said the airline had sold 30,000 seats by mid-afternoon, with earlier yesterday, chief executive of Pacific Blue’s parent company Virgin Blue, Brett Godfrey, announcing a new era of competition in New Zealand skies on major trunk routes from Pacific Blue, beginning on November 15.

The airline will fly Wellington-Auckland, Wellington-Christchurch and Auckland-Christchurch, with an introductory fare of $39 available from now until September 16 – or until sold out – for travel between November 15 and February 29 next year.

It said it would look at expanding beyond the three main routes.

The move puts Pacific Blue in direct competition with Air New Zealand and Qantas.

Pacific Blue was not in a position to try to usurp Air New Zealand, but rather wanted “to take a slice of the pie”, Mr Godfrey said.

The company was focusing on cheap seats, so there would be no freebies on board, he said.

Air New Zealand said it wasn’t threatened by Pacific Blue, predicting its rival would be uncompetitive in most fare categories. Air NZ spokesman Norm Thompson said Air NZ was the market leader in everyday low cost travel in New Zealand and that would not change. “Our commitment extends to the fact that this afternoon we have moved to continue to lead the market by lowering lead-in year-round fares on the main trunk routes.”

Mr Thompson said the number of people Air NZ had flown around New Zealand increased from 5.5 million in the 2002 financial year to 7.7 million in the 2007 financial year, an increase of 40 per cent.

Air NZ’s advantages over Pacific Blue went beyond price, he said. “Our frequency on the main trunk routes on which we will compete is far superior due to the fact that we have 14 Boeing 737s in our domestic fleet and are about to take delivery of a further two, compared with Pacific Blue’s two aircraft.”

Mr Thompson said Air New Zealand had been expecting a new competitor in the domestic market for the past couple of years. The company has already said it will announce counter-measures on Tuesday. It has said the market was too small for three domestic airlines to all make money.

Macquarie New Zealand investment director Arthur Lim said Air NZ would react as it had in the past, such as when it introduced Freedom Air to counter KiwiAir. “They won’t sit still. They will respond as they have in the past. It will be hand-to-hand combat.”

Mr Lim said new entrant airlines typically offered very aggressively discounted fares for six months to a year and then reverted to more “normalised” fares.

Pacific Blue was likely to lose money in the first year or two as it scrambled for market share, Mr Lim said. Air NZ would be forced to compete on price but it would use its service to the regions to its advantage.

Pacific Blue has said it might consider operating regional routes in the future, depending on the success of trunk route flights.

Air NZ shares slumped 17 per cent from $2.35 on Monday before the news broke to a low yesterday of $1.94 but today rebounded to $2.06.

Mr Lim said it was a classic “buy the rumour, sell the fact” market reaction.

Flight Centre has hailed the new domestic airline as “terrific”. Communications manager Melanie Pohl told NZPA it would revitalise domestic travel and should increase competition, leading to lower domestic air fares.

People would also be able to take advantage of cheap domestic flights to get the best deal for their international flights, Ms Pohl said. “It’s very cheap to fly internationally out of Christchurch because of all of the low cost carriers that fly out of there, so people from Wellington or maybe even Auckland may choose to fly down to Christchurch to make a long-haul flight.”

The Wellington Regional Chamber of Commerce has welcomed Pacific Blue’s arrival as “a much needed carrier to the capital” that would boost its economy and tourism industry. Chief executive office Charles Finny said competition had been limited for too long. “For example, currently there is no effective competition on the Wellington-Christchurch route.”

Acting chief executive officer of Wellington Airport Mike Basher said Virgin Blue ran a highly successful airline in its domestic Australian operations which offered competitive fares. “The entry of Virgin’s New Zealand arm, Pacific Blue, means New Zealanders will now have access to a market where there is genuine but profitable domestic competition.”

Christchurch and Canterbury Tourism is also optimistic it will get a boost from the new fares and increase its reputation as a short-break destination. “As air fares drop people will be more inclined to just jump on a plane and head away for the weekend,” chief executive Christine Prince said.

A Report by The Mole