David Knibb SYDNEY
Midyear results from Qantas and Air New Zealand show the impact that Australia's discount carriers, Impulse and Virgin Blue, have had on the established airlines.
Fare competition contributed to a 22% drop in half-year profit at Qantas, and a 97% plunge at Air New Zealand. Fuel prices, currency devaluations, and a net traffic slump following the Sydney Olympics also played a part, but the effect of low-fare competition in the Australian domestic market was most evident at Ansett Australian, Air New Zealand's wholly owned subsidiary, whose operating revenue fell 70% despite steady revenue passenger kilometres.
Qantas, which saw its own domestic revenue drop by 26%, is quick to blame deregulation. James Strong, the airline's retiring chief executive, points to competition from Virgin and Impulse as the main cause for its poor domestic result. Geoff Dixon, Strong's successor, adds: "This is the negative side of the rapid liberalisation of the aviation industry by successive governments in Australia."
Union leaders lay the same charge. "It's the aviation policy of the Federal Government that's got us in this pickle," complains union official Linda White. "We told the federal transport minister, John Anderson, that this would happen two years ago and it's all starting to unfold."
Both Qantas and Air New Zealand plan adjustments in response to their poor results. Air New Zealand plans to refleet Ansett and boost its domestic capacity. But that will take longer than it is taking Qantas to suspend routes to Vancouver and Shanghai and redeploy four Boeing 767-300s to the domestic market. This will raise Qantas's domestic capacity by 11%, compared with the market's 7.5% rate of growth.
One aviation consultant claims Qantas is aiming to strike a blow to its perennial rival, Ansett Australian. Peter Harbison, executive director of the Sydney-based Centre for Asia Pacific Aviation, says: "The capacity boost by Qantas makes it harder for Singapore Airlines and Air New Zealand to do what they need to do to rebuild Ansett."
Qantas demurs, but both Strong and Dixon acknowledge that the capacity Qantas is adding in the domestic market will intensify competition. "It's a tough phase and it's going to get tougher for everyone," Strong told reporters.
Dixon warns that it will be hard for the new entrants to survive all the planned capacity increases. Impulse and Virgin have responded by accusing Qantas of a plan to dump capacity on the routes they fly in an effort to drive the start-ups out of business.
Impulse has already complained to the Australian Competition and Consumer Commission (ACCC) and Virgin says it will follow suit if Qantas prices these extra seats below cost. Qantas has not revealed where it will fly the extra aircraft or at what fares. The ACCC has adopted a wait-and-see attitude.
Gerry McGowan, executive chairman of Impulse, insists that any Qantas move against the low-cost rivals will backfire. "We have about a 40% cost advantage over the big boys," McGowan boasts. If they start a fare war, "you're going to find Ansett and Qantas trying to bludgeon each other into submission."
Source: Airline Business
