Air New Zealand 'ready for a fight' with Jetstar on New Zealand's regional routes

Thursday 18th June 2015

Air New Zealand says it’s game on in competing on regional routes with Jetstar which announced today it would expand its services in New Zealand from December.

The move breaks Air New Zealand’s stranglehold on the regional market, and has been welcomed by regional airport leaders and Prime Minister John Key, who say the competition and extra capacity should benefit locals and tourists alike.

Qantas chief executive Alan Joyce said typically fares dropped 40 percent in New Zealand when Jetstar, Qantas’s budget offshoot, began flying the main trunk routes and he’d expect a similar impact this time round.

Cam Wallace, Air New Zealand’s chief sales and commercial officer, said the national airline would match any fare reductions Jetstar introduces on regional flights and wouldn’t allow itself to be undercut.

“We’ve had two years to get ready for this fight and we believe we are,” he said.

Air New Zealand investors didn’t seem to share the same sentiment sending the company’s share price down 9.6 percent today to $2.395.

Jetstar had been considering the move for some time with Joyce saying increased tourism numbers and the improved economy meant the timing was right now, although Wallace said it was more likely to be about having the aircraft available. Jetstar will use five 50 seater A300s which have been flying regional Australian routes.

Wallace said Air New Zealand had competed aggressively against Jetstar on the main trunk routes since it entered the domestic market in 2009 and had sold 500,000 domestic fares under $100 this financial year. He said the airline would also compete fiercely on the regional routes although Jetstar won’t announce where it will fly to until fares go on sale in September.

Options include Hamilton, Rotorua, Napier, New Plymouth, Palmerston North, Nelson and Invercargill. Joyce said he expected the airline to be flying to at least four destinations by the new year.

Jetstar’s move comes as no surprise to the national airline, which has seen increased demand and profitability on the regional routes in the past two years. It suffered a consumer backlash after pulling out of operating services to three of its smaller unprofitable destinations, Kaitaia, Whakatane, and Westport, from April. Jetstar has no plans to fly those routes either.

Wallace said the airline had added capacity on regional routes due to the increased demand in the past couple of years. It was expanding capacity by 6.5 percent or another 385,000 seats on regional routes in the 2015 financial year, he said.

“We now think the business is in a good space to be able to compete vigorously with the right fleet and a very effective cost base.”

Jetstar CEO Jayne Hrdlicka said the final choice on its regional destinations rests on the partnerships the airline is able to make with local councils, airports and communities. “It will come down to getting the right slots, at the right times, and at the right prices,” she said.

Hrdlicka said there was pent up demand in New Zealand for a low-cost service with Jetstar having received some 10,000 'posts' from Kiwis in the past two years asking it to start flying into regional New Zealand.

It was about growing the pie and maintaining profitability for both airlines rather than fighting each other for market share, she said.

Wallace agreed adding capacity always stimulated demand though he said the competition would be about more than price with passengers also concerned about the size of the network, frequency of flights, and additional service such as lounges.

Jetstar employs 400 people in New Zealand and hiring is underway for a further 100 to service the new routes.

The NZ Airports Association said today’s decision was a true reflection of the confidence Qantas and Jetstar have in the growing New Zealand market.

“All NZ’s larger airports have seen increases in their passenger numbers and the number of visitors coming to our shores has increased steadily. The number of domestic passenger movements grew by almost 7 percent to over 22 million in the last two years,” said association CEO Kevin Ward.

Last year a record 2.95 million tourists visited New Zealand, spending $7.45 billion - 13 per cent more than the year before.

BusinessDesk.co.nz

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