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Minnow toughens up

By Graeme Kennedy

Friday 4th July 2003

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Regional carrier Origin Pacific is developing contingency strategies for continued growth and survival against the combined might of Qantas and Air New Zealand if their proposed alliance is approved by competition regulators.

In five years Origin has become a popular and viable third domestic airline with 17 aircraft and last year carried more than one million passengers, many of them under a code-share agreement with Qantas. But that arrangement would end if the alliance is approved, and CEO Tony Marks says the relatively small carrier was trying to position itself with future strategies including a "Plan B and Plan C."

"Right now we have a nice Plan A with two competing mainline airlines, and one of them, Qantas, linked with us," Mr Marks said. "But if Qantas is taken out it would leave a small airline competing against two majors ­ that would be rough for us.

"We have a strong working relationship with Qantas and that has been important to our development and evolution, but in our latest submission to the Commerce Commission we point out that it would be prudent for Origin to look at a possible future without them.

"Qantas and Air New Zealand would have a combined 95% domestic market share and a huge part of the inbound traffic, and we told the commission that under those circumstances it would be highly unlikely Origin could mount any form of significant competition.

"But our future is quite strong as there are opportunities. We would like to bring in new aircraft in the next year or so and have been talking to lessors about that ­ but you've got to have a playing field where you stand a chance."

Mr Marks said Origin had told the
commission the elimination of domestic -market competition as would be the case in an alliance was not in the interests of the country, the industry or consumers and that Origin was an "aggressive and feisty" player.

"Air New Zealand's original submission virtually ignored regional New Zealand and that is distressing and depressing as regional economic development has been at the heart of New Zealand economic progress in the past few years," he said. "Of 500 pages, only two and a half were on the regions, and that says it all ­ just how little they are concerned about regional development.

"We were pleased with the initial determination [which rejected the application] but we are now in round two and we have reiterated our original comments. But again there is no mention of the regions in Air New Zealand's latest submission so, as far as we are concerned, nothing has changed."

Mr Marks said Origin had a small overall market share but had up to 40% of frequencies on its strongest city pairs such as Nelson-Wellington, Wellington-Christchurch and Christchurch-Dunedin. Capacity share is lower as its aircraft have fewer seats ­ the Jetstreams carry 19 passengers and the ATRs 66.

He said successive governments since the 1980s has ensured genuine competition in New Zealand but the alliance application would end competition domestically and across the Tasman.

"They say they are doing it for efficiencies," Mr Marks said. "If Farmers, The Warehouse and Noel Leeming all got together they would improve efficiencies too ­ but there would be just one place in the country where you could buy a TV, and that doesn't compute for us.

"Competition brings innovation and change as well as keeping prices down and we don't see that airlines should be immune from those forces."

The former Air New Zealand commercial manager and kiwifruit marketer Zespri CEO has driven fare structure changes and raised Origin's image and public profile since taking the top job three months ago.

Most airlines have traditionally linked price with time of purchase ­ the earlier a ticket is bought the lower the cost ­ but, partly because of the European low-fare carriers, cheapness comes with strict conditions and the "use it or lose it" rule while higher rates buy more flexibility to allow flight changes.

Air New Zealand adopted the flexibility-based model for its Express Class, and after a review of its market position and some passenger research Origin decided to go the same way.

"We organised our fares in a similar way but with some variations and it has been very well received," Mr Marks said. "We sell on the website, through an 0800 number and travel agents ­ and we continue to pay them commissions.

"And we have heightened Origin's profile as New Zealand's heartland airline, a value-based no-frills carrier with an offering that has solid appeal to ordinary people.

"The airline has not invested nearly enough in profile ­ our core passengers know what we do but otherwise we are not widely known and we are now promoting ourselves more. We want to make sure the public is aware there is more than one airline out there."

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