AirNZ made no decision on whether to cut trans-Tasman services

By NZPA

Thursday 16th November 2006

Air New Zealand says it has made no decisions on whether it will reduce trans-Tasman services after giving up on plans to pursue a code-share agreement with Qantas.

Air NZ announced yesterday it would withdraw its applications, for the airlines to share services on the Tasman route, with the Australian Competition and Consumer Commission (ACCC) and New Zealand's Ministry of Transport.

The ACCC recently made a draft rejection of the Air NZ and Qantas proposal, and Air NZ said its review of the recent draft judgment from the ACCC gave it "little confidence that its views will be given any weight" when the final ruling was delivered.

"So we're better off withdrawing our application and redeploying our resources," Air NZ chief executive Rob Fyfe said.

The airline had previously indicated that it might be forced to reduce capacity on the Tasman if the code- share was not approved.

Fyfe said yesterday there had been no decisions made on that issue, today's New Zealand Herald reported.

But it was clear something had to be done to address the profitability of the route -- which accounted for about 20% of Air NZ revenue.

"We haven't got a master plan that is about to be rolled out tomorrow," he said. "We still have a series of routes across the Tasman that are very poorly performing for us. We will now have to review how we address those issues."

The Dominion Post today reported Fyfe backed away from his earlier threat to raise fares or reduce seat numbers out of Wellington if the code-share failed.

There would be no immediate changes to schedules or prices, he said. The airline had lost $35 million on its services to the capital since 2003.

The code-share was in the best interests of customers and the best solution to tackle the oversupply of seats on the Tasman while retaining a low fare structure, Fyfe said.

Wellington International Airport led a vigorous and often acrimonious campaign against the code-share.

The city would have been the hardest hit by the code-share, losing all competition on Melbourne and Sydney services and a total of seven flights a week.

But last night Wellington airport, along with political and business leaders, held out an olive branch, promising to work more closely with the airlines to improve the performance of Wellington trans-Tasman services.

Airport chief executive Simon Draper said he was relieved and the decision would make it easier for the airport and airlines to work together.

Ian Thomas, aviation analyst at the Centre for Asia Pacific Aviation Studies in Sydney, said there was always a risk of a cut in trans-Tasman services.

"The Tasman's a very low yield market. It's always been one that's been under pressure. It really depends now, I think, on whether either carrier really wants to give ground," he told National Radio today.

It was harder for Air NZ, than for Qantas, because the Tasman market was so important for it.

"I think they'd be reluctant to cut capacity at this stage but they may look at other modelling," Thomas said.

He thought that particularly for Air NZ the code-share had been seen as an essential part of its forward strategy.

"They really needed a relationship with Qantas on the Tasman to really, I suppose, impose some rationality in terms of pricing there."

Now Air NZ would have to go to another plan, which might be a development of its own services, he said.

He expected Qantas would continue to develop the Tasman as it had been doing, probably trying different things in a bid to reduce costs.

"But in the end I don't think Qantas will feel like it's a terrible loss," Thomas said.

Fares would continue to be highly competitive on the Tasman and a good variety of services would be available.

There could be some scaling up by Pacific Blue, the offshore arm of Australia's Virgin Blue, which had been holding back waiting for the code-share decision, he said.

"In the longer term there may be some rationalisation of services, which really counters any short-term benefit."

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