Crowded skies about to get even busier

Air New Zealand and Qantas have been transtasman rivals for decades. Photo / Dean Purcell

Travellers to Australia have been snapping up tickets for as little as $49 - less than the price of a taxi from the city to Auckland International Airport.

That rock bottom price was part of a sale by low fare airline Jetstar - one of seven carriers battling in one of the world's most competitive aviation markets.

It's a market that could get even busier with rumours that Tiger Airways and AirAsia X are preparing to join the fray.

Air New Zealand is trying to form an alliance with rival Virgin Blue - which owns Pacific Blue in New Zealand - for a code-share agreement covering the Tasman and domestic travel in Australia and New Zealand as part of a connecting journey.

Regulatory authorities on both sides of the Tasman will have to decide whether the proposed alliance helps or hinders competition and passengers.

First NZ Capital analyst Jason Familton says the competitive nature of the Tasman is one reason why the alliance may get approved by the regulators.

"My concern would be that predominantly relates to Auckland and Christchurch from a New Zealand perspective and if you look at Wellington, Dunedin, Queenstown, Rotorua, Hamilton you've significantly less amount of competition ... so I have concerns around competition authorities' views on those segments of the market."

House of Travel retail director Brent Thomas says the proposed alliance would benefit travellers by producing more evenly spread flights through the day.

It would create an opportunity for New Zealanders to explore further afield into Australia and for people from different parts of Australia to get to New Zealand, rather than just the eastern seaboard, Thomas says.

Tasman travellers have never had it so good, he says. "New Zealanders have been blessed with the number of carriers and the pricing for a number of years on the transtasman, do we see that continuing? Absolutely," Thomas says. "We're likely to continue to see specials that once upon a time we could only dream about."

A total of 948,255 New Zealand residents made a short-term trip to Australia in the year ending April, with 1.1 million Aussies coming the other way.

"Costs, choice, service, proximity - they're the things that have been able to drive the patronage," Thomas says.

While airlines battle it out for customers, one fundamental change to the international transtasman market could blow it wide open - making it a domestic route.

Jetstar chief executive Bruce Buchanan says pricing is a barrier but the airline is also working on getting the Tasman changed officially to a domestic route, which would make air travel more accessible and drive gains in the economy.

"You can't underestimate the increased volume that we would see travelling across the Tasman and the increased flights and the new direct city pairs that would open up."

Changing the transtasman to a domestic route would need a common border system between the two countries, he says.

"We just need to get the bureaucrats on board and in particular we need to get the bureaucrats on board in Australia. They're probably the ones that are dragging the chain more than the New Zealanders."

It was a mistake to look just at pricing when examining the challenges facing the sector, Buchanan says.

"It's also about choice," he says.

"What I think is bizarre is when we came into this industry airlines were all about defining what the customer experience had to be and you had to buy this and you had to buy that ... all sorts of different things were included in the ticket price."

Filling up seats is more profitable than leaving them empty and Jetstar drives a lot of revenue in activities including rental cars, hotels and insurance, while passengers can buy meals, in-flight entertainment and access to lounges, Buchanan says.

The premium end of the market is driven by business confidence, with the leisure end driven more by retail and discretionary household spending, he says.

"There's a lot of uncertainty in the business environment but there's also a lot of uncertainty at the leisure end at the moment," he says.

"You have many portfolios and respond to customers' needs and never try and put all your eggs in one basket or bet on what's going to happen."

Air New Zealand last month started selling four ticket options from Christchurch to Sydney for travel from August 18, with options from an entry level that included a seat and carry-on bag, up to a deluxe offering that included two priority bags, premium check in, lounge access, movies and a meal.

The Air New Zealand options cost from $169 and customers will be able to buy food from an in-flight menu and view movies using a credit card.

Air New Zealand group general manager for short haul, Bruce Parton, says later in the year the airline will offer a range of options across the network to fit with what customers say they want.

"If you like the experience you enjoy today flying with Air New Zealand across the Tasman, you'll still get that," Parton says.

"Or, if you want the cheapest possible fare and to forgo some of the added value services we offer that option will be available to you as well. You can also pay a little more and get a superior service to what we offer today."

Parton says Air New Zealand has a market share of 2.1 million out of 5.8 million passengers who fly between Australia and New Zealand each year.

Moves by Air New Zealand prompted an editorial in the NZ Listener magazine, saying the airline was "going determinedly downmarket on its Australian and Pacific routes".

The airline responded with a full page advert and video, in which it said it was not becoming a budget carrier and Virgin would be upgrading.

Danielle Keighery, Virgin Blue Group general manager of public affairs, says the company has signalled it is going after more of the corporate market, which would be more of a premium offering.

Pacific Blue was in the process of upgrading aircraft to offer premium economy, Keighery said.

"Obviously we don't have a business class as yet but it's not to say it will never happen but I think first and foremost we have to just get the alliance agreed and post that we'll certainly be looking at how we support it from a customer perspective."

The airline was not moving away from the low-fare image which was core to the company but was adding to it, moving to be more of a two class carrier, giving people more options and flexibility, Keighery said.

"Price is always a key component to it but obviously it's become even more so during the last couple of years while this global financial crisis has been happening," she said.

"It's one of the most deregulated and competitive markets in the world and certainly this alliance won't change that. If anything we think it will actually increase the competition in the region."

John Beckett, executive director of the Board of Airline Representatives New Zealand, says with free entry to the transtasman market there is always scope for other players to join in. "No one can say the limit is 10 or whatever," Beckett says. "It's a matter of the market works it out."

Two airlines rumoured to be eyeing the transtasman are Singapore's Tiger Airways and Malaysian operator AirAsia X.

AirAsia X was set up in 2007, focusing on the low-cost, long-haul segment to destinations in Australia, China, India, Middle East and Europe, while Tiger Airways was set up in 2004 and operates a fleet of 19 aircraft, with flights to 33 destinations across 11 countries and territories in Asia and Australia.

Transtasman was an add on to an existing route for some of the carriers and it was a question of them evaluating what they gained, Beckett said.

"It fits in with utilisation of their aircraft," he said. "That can work for some airlines and not for others and each of them works that out - but that's the nature of competition."

Decades ago carriers on the Tasman required a licence from the Ministry of Transport and so free entry was not possible, Beckett says. "And what's more there was a dreadful stage where the fares were all controlled by the Ministry of Transport."

Nowadays, airline fares were responsive to low loading and peak days, attempting to get the most efficient patterns and using pricing to try to keep planes fairly full all the time, he says. "That's all the market working properly."

Beckett believes the transtasman model is sustainable in the long term.

"I believe so but airlines will withdraw from certain routes, some airlines might end up being acquired by others. It's one of the things about competition. There can be new entry but there can also be exits."