Four more airlines may crowd New Zealand skies

By GREG ANSLEY in Sydney

Air New Zealand is expecting serious new competition in its domestic market with as many as four new airlines considering launching operations in the country.

Two have already announced their intentions - Virgin Blue and the European-backed New Zealand consortium Jump - but details of the other proposals remain confidential.

The interest in new airlines was reported yesterday in Sydney by Air New Zealand chief executive Ralph Norris during a lunchtime address to bolster support for the proposed alliance with Qantas.

Norris also announced that Air NZ made its first small profit on the Tasman in five years, through a 12 per cent cut in capacity.

But he quickly countered that by pointing out that new Virgin and Emirates services will add an extra 40 per cent to the number of seats available on the route.

This is in addition to extra capacity from eight other international airlines - Thai, Malaysian, Garuda, Lan Chile, Aerolineas Argentinas, Royal Brunei, Royal Tongan and Polynesian.

On a more positive note, Norris said Asian markets were beginning to bounce back more quickly than expected after the Sars outbreak.

As a result, Air NZ was expecting a profit in line with the annual meeting forecast of $200 million, but below the upgraded December forecast of $230 million.

Norris said he did not think there was any doubt that there would be new entrants in the New Zealand domestic market.

Virgin Blue had already announced its intention to enter the market and others were expected.

"There are two or three others that have spoken to us about the possibilities - particularly given the undertakings that we have made to the Commerce Commission and the ACCC - as to whether they could take advantage of those commitments."

Any new entrants would obviously affect pricing, he said, but the introduction of its Express service had put Air NZ in a much more robust position.

The entrants were not, in his view, likely to affect the decisions now being made in Wellington and Canberra by regulators.

Norris said the big increase in capacity on the transtasman routes would affect most airlines.

"When you add something like 40 per cent additional capacity to a market, that's a lot for any market to absorb in a relatively short time.

"It will be a stimulation in the market because obviously that additional capacity will have an impact on price.Price will create a situation of elasticity and we will obviously see an increase in the number of people flying. However, ... some carriers will lose share."

Norris again attacked the interim findings of the regulators but said he was confident in the arguments that had been put forward by the airlines.

The Air NZ boss said the arguments would be substantiated before the Commerce Commission during a five-day hearing from August 18.

Norris declined to comment on what action Air NZ would take if the alliance was again rejected but said there was no chance of the Government agreeing to any change in the competition laws.