Industry leader says that Australia-New Zealand aviation on brink of rapid expansion

The Sydney based Centre for Asia Pacific Aviation in its new Aviation Outlook Report released in Sydney yesterday predicts Australian and New Zealand domestic and international aviation markets will undergo a period of rapid change and development over the next 24 months.

Peter Harbison, Executive Chairman of the Centre says in the report, “Qantas and its precocious offspring, Jetstar, will almost certainly embark on a pan-Asia expansion in the next two years, with the growth prospects for Qantas significant, particularly if it can more effectively access traffic flows within the region to the north of Australia and incorporate this with inbound/outbound business”.

However, the Outlook report warns that the announcement by Tiger Airways to enter the Australian domestic market late in 2007 is likely to temper Qantas’ optimism with Tiger having proved an aggressive operator in an extremely tough market, and its presence locally, albeit in a relatively modest way with only five A320s initially, will apply pressure to fare levels on selective routes.

Mr Harbison added, “The elephant in the corner of the room for 2007 is the promised entry of Tiger Airways to the domestic market, which will have a disproportionately large impact on profitability and, more importantly, on stimulating traffic on slowing routes, particularly in the Sydney-Melbourne-Brisbane corridor”.

The report also states that Virgin Blue has come off a highly successful first half, where a stable duopoly in the domestic market has delivered the most profitable year ever for Australian domestic airlines.  It now looks forward to resolution of its long term ownership structure, with majority owner Toll Holdings showing signs of exiting – and the prospect either of another private equity purchase, or perhaps interestingly even of Singapore Airlines taking a dominant position.

Mr Harbison said, “This is a marketplace where almost anything appears to be possible today”. 

Meanwhile, the outlook for the New Zealand aviation in 2007 is uncertain, with according to the report, Air New Zealand may be facing domestic headwinds, as Qantas/Jetstar and Pacific Blue reassess their market positions there, but the flag carrier’s long-haul strategy appears to be working well.

“This may be a good year for the New Zealand Government to sell down its holding in Air New Zealand, to capture some of the value as the share price soars, and to allow private investment to carry the longer term risk”, said Mr Harbison.

Internationally, a cause for concern has been the stagnation of inbound tourism to both Australia and New Zealand, reviving calls for greater airline liberalisation, particularly in Australia, with the report stating that synergy between tourism and airline liberalisation will provide a stronger voice for those seeking greater aviation access in 2007, not only in Australia/New Zealand, but across the region.

“Achieving a reasonable policy balance between the two often conflicting objectives of airline operator and infrastructure supplier will be difficult, especially when there is a strong political overlay affecting the outcome.  This balance will be tested in Australia when bilateral negotiations resume with the United Arab Emirates in March over granting expanded access to Emirates and Etihad Airways”, said Mr Harbison.

The report notes that Australian airports have performed well, in terms of movements and profitability, offering a fertile environment for BAA to be selling down its interests in several of the major operators in the year ahead.  Across the Tasman, having opposed the various merger proposals of Air New Zealand and Qantas, airports in New Zealand are hopeful now that competition will stimulate new growth and meanwhile, they have the comfort of remaining highly profitable.

But it is the potential private equity buyout of Qantas that is a key development for the region’s airline industry, sending a message that the equity markets have reappraised the opportunities in this sector.

“The entire Asia Pacific airline market is on notice since the Qantas bid led by Macquarie Bank, Allco and Texas Pacific. The equity hounds are baying – and the entire aviation jungle is listening”, said Mr Harbison.

The Centre’s Aviation Outlook report is available for purchase online at www.centreforaviation.com

About The Centre for Asia Pacific Aviation
The Centre for Asia Pacific Aviation (www.centreforaviation.com ) is a specialist information and data services group focused on the aviation industry in the Asia Pacific region.  The Centre’s headquarters is in Sydney, Australia, with regional offices in Singapore, New Delhi, Geneva and Manchester and representatives in Auckland, Bangkok, Beijing, Dhaka, Hong Kong, Shanghai and Tokyo.

A Report by The Mole