Ten airlines in dogfight over the Tasman

01.05.2004
By CHRIS DANIELS

It's been called the most competitive aviation market in the world -
10 airlines cutting one another's throats for a share of the action.

The whole spectrum of airlines is fighting it out over the Tasman,
from low-cost carriers Pacific Blue and Freedom right up to the
opulent Emirates, with Air New Zealand and Qantas somewhere in the
middle.

Prices have fallen dramatically in the past year and new flights
between New Zealand and Australia are being added.

By the end of this year, new flights between Auckland and Adelaide,
Christchurch and Melbourne, Wellington and Sydney and Queenstown and
Australia will all be launched, adding even more pressure to a market
where some say fares are already too low to last.

The Air NZ general manager responsible for the transtasman market,
Andrew David, says there is no question about the importance of the
routes for the airline.

"It's a core part of Air New Zealand's operation and will continue to
be so. It's very much part of what we regard as our home market so
that's full-stop in terms of importance."

After taking special discounts into account, he says fares across the
Tasman have in some cases fallen by 50 per cent in a year.

"It's a very key market for us and it's probably the most fiercely
competitive market anywhere in the globe. You've got currently 11
airlines [counting Freedom as a separate carrier] competing for a very
small market.

"It is primarily because there are 11 airlines competing and the
increases that we're seeing in capacity year on year."

While there's no disputing that a lot of airlines now fly the Tasman,
there is also no question that the market is still dominated by Air NZ
and Qantas, both of which are still trying to get regulatory approval
to join forces in an anti-competitive "alliance".

Any traveller wanting the cheapest possible fare to Australia, with no
worries about flying at an inconvenient time, would likely end up
travelling with Lan Chile, Aerolineas Argentinas or Thai.

But most premium business travellers, for example, need to get to
Australia in the morning, and home in the evening.

This means they will almost inevitably fly either Air NZ or Qantas.
Royal Brunei and Garuda fly only between Auckland and Brisbane, and
Lan Chile and Aerolineas Argentinas fly only a few times a week.

It is the frequency of Air NZ and Qantas flights that puts the pair
far above their rivals on the Tasman. But the prices are kept low by
the others, who reportedly need only a half-full plane to break even
on the route.

David says Air NZ's "frequency share" is a major difference between it
and the other carriers. Of every 100 flights across the Tasman, an Air
NZ plane is flying 48 of them.

"We believe we hold a position of strength and we believe we will
continue to respond to customers' demands," he says.

Anyone outside Auckland is also restricted for choice. However,
Pacific Blue is slowly taking on Qantas and Air New Zealand's
dominance on the routes. Later this year, Emirates will start flying
to Australia from Christchurch, which means the big two may start
finding themselves squeezed at both ends of the market.

One thing that helps Air NZ, Qantas and their competitors is the fact
that they are scrapping over slices of an expanding pie.

While capacity across the Tasman has grown by 24 per cent over the
past year or so, that is not far from the 20 per cent jump in the
number of Australians coming to visit New Zealand.

When Air New Zealand cut its fares and launched its simpler Tasman
service last October, bookings leaped 14 per cent.

James Langton, president of the Travel Agents Association of New
Zealand, says the new fares have opened up travel to many people who
previously could not afford to fly, but he has doubts about how long
it can all last.

Were it not for the presence of what the industry calls "fifth freedom
carriers", there would be little public choice and much higher fares.

Those "fifth freedom" airlines include Emirates, Thai, Lan Chile and
Aerolineas Argentinas, for whom the Tasman flight is but one leg of a
larger trip.

Until these airlines started flying, says Langton, Qantas and Air New
Zealand "charged what they bloody well liked".

"Long-term, those [economy class] fares are not sustainable - they are
absolutely not sustainable. The likes of Qantas use many of those
fares to feed into their international routes ex-Australia. They are
literally for nothing, because people are flying on to Asia, Africa or
Europe."

Langton says Qantas and Air New Zealand are desperate to maintain
their dominant market shares, so they will cut their fares to match
what Pacific Blue, Thai or Emirates are offering.

He believes that ultimately one of the airlines will either have to
pull out of the Tasman market or start putting up fares.

But intense competition and cheap fares do not mean all the airlines
are losing money over the Tasman.

A super cheap fare may not turn a big profit for Qantas or Emirates,
but big money can be earned from the trip beyond New Zealand or
Australia.

In a network operation, Air New Zealand may lose money flying business
travellers from Westport to Christchurch, but make a profit once they
are on the busy main trunk.

Similarly, Qantas cutting its fares to match Air New Zealand's
offering may put more people on its network, who then fly on to Asia
or Europe.

Air New Zealand's new Tasman Express model is an attempt to emulate
the winning ways of low-cost carriers, by keeping costs low,
simplifying fares, encouraging internet bookings and increasing
frequency.

If it can keep costs low, simplify its operations and fit in one extra
flight a day than its rival can, that might just make the difference
and turn the profit.

Fifth freedom carriers mark out Tasman aviation as something special
in world terms, occupying a unique niche. They fly the route at
marginal cost and can offer top-flight service for low fares.

Under international agreements covering aviation rights, various
freedoms are negotiated - ranging from the right to fly over another
country, to running full domestic service between two foreign cities.

A fifth freedom is defined as 'the privilege for an airline registered
in one state and en route to or from that state to take on revenue
passengers, mail and freight in a second state and to put them down in
a third state."

Airlines such as Lan Chile and Aerolineas Argentinas are flying to and
from Australia, but their planes cannot make it all the way from South
America, so they stop in New Zealand to refuel - and pick up
passengers.

Many countries do not allow airlines this kind of freedom, but New
Zealand has "open skies", meaning that as long as safety standards are
met, any airline can fly in and out of New Zealand as often as it
likes.

Emirates, which has rapidly grown to become the number three airline
on the Tasman, has been allowed to fly to New Zealand for years, but
came here only once the Australian Government (which protects Qantas
by restricting other airlines' rights to fly to and from Australia)
allowed Emirates to fly to Sydney.

Without these "fifth freedom" carriers, New Zealanders wanting to
cross the Tasman would be lucky to get anything more than "nuts and
cola" service.

The price of a ticket is unlikely to fall much further, unless
airlines can find big cost savings in their operations. More likely is
the rapid development of new destinations, to and from smaller
provincial towns and cities.

Then you won't have to travel to Auckland and wait for the next
747-400 from South America to catch a cheap glimpse of the Sydney
Opera House.
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