Australia and New Zealand took a step closer to a single aviation market with Virgin Blue's decision to enter NZ market
Virgin Blue's Christchurch-based unit Pacific Blue will launch Boeing 737-800 service in mid-November between Auckland, Wellington, and Christchurch with frequencies ranging from two to five daily flights.
Adding domestic New Zealand flights has been on Virgin's agenda for several years and Virgin Group founder Richard Branson publicised the idea in January. Under the liberal regimes of New Zealand and Australia, airlines from either country enjoy cabotage rights in the other.
Virgin Blue waited until now to make this move because of the lack of available aircraft and the prospect of earning higher yields in New Zealand. Virgin is adding 737-800s before the end of this year and has ordered another four for delivery next year. The first of 20 Embraer regional jets have also begun arriving. While they are not destined for New Zealand, they can free up more 737s from thinner Australian routes.
The arrival of Tiger Airlines in Australia in November has also made New Zealand more attractive. Qantas and Jetstar vow to defend their domestic market against Tiger at all costs. Fare wars have already started, driving down Australian yields. Looking for an alternative to this blood bath, Brett Godfrey, Virgin's chief executive, decided to shift his attention to New Zealand at a time when the others are distracted.
Qantas already operates limited service within New Zealand, but it mostly feeds traffic to and from its international flights. Godfrey claims Qantas really does not compete for local New Zealand traffic, so "the wise move for us was the first-mover advantage".
Shifting capacity to New Zealand means delaying Virgin's plans for an ultra low-cost Australian carrier. Godfrey defends this by saying: "The idea is put that capacity in markets and points of least resistance."
Air New Zealand's (ANZ) main response to Virgin's arrival has been to restructure its economy class into a low-cost cabin behind a regular economy class. ANZ has concluded this makes Freedom Air redundant.
Analysts predict Virgin will not hurt ANZ. Pacific Blue will enjoy a cost advantage because its 737-800s carry more passengers and burn less fuel than the 737-300s ANZ operates, but its frequencies will be modest compared to ANZ's.
Virgin's biggest impact may be on the Qantas group. Jetstar chief executive Alan Joyce insists Virgin will not affect their New Zealand plans but admits they have higher priorities elsewhere.
Source: Airline Business
