KEY POINTS:
Budget carrier Freedom Air has been axed by parent company Air New Zealand as the difference in fares between the two airlines has narrowed and consumers demand higher standards.
From March next year Tasman services from Freedom Air, which was established in 1996 and has carried more than
four million passengers, will be replaced by Air New Zealand.
Norm Thompson, Air New Zealand group general manager for short haul airlines, said the company had not given up on the budget end of the market.
"The reality is that the price of airfares has fallen dramatically over the past 10 years and today there is little difference between Freedom and Air New Zealand fares," said Thompson, who this week was appointed deputy chief executive.
Consumers would not be disadvantaged in regards to Air New Zealand pricing, Thompson said.
About a year ago Freedom Air stopped flying to Pacific Island destinations and in parallel with Air New Zealand on Brisbane routes.
Those changes were not intended as the start of yesterday's announced halting of Freedom flights, Thompson said.
"It was just the reality of the situation that here we were ... competing against each other and it just didn't seem to be a good decision at the time."
The carrier change is part of a revamp of Tasman and Pacific Island services.
A survey of frequent Tasman customers had shown an overwhelming preference for upgraded and enhanced services, Thompson said.
"Consumers have been saying for some time now that they would prefer to be able to get a meal on board provided to them within the airfare, they'd prefer to be able to have the in-flight entertainment without having to put their hand in their pocket to pull out a couple of dollars for the headset."
Regional councils had also been asking for the Air New Zealand tail, rather than that of Freedom Air, because of its greater brand awareness and benefits for tourism, he said.
Shares closed 3c up yesterday at $2.17.
First NZ Capital analyst Jason Familton said shifting to one brand made sense given the narrowing price gap.
"The argument comes down to whether there was reasonable price differentiation between Air New Zealand and Freedom," Familton said.
The restructure would also enable greater flexibility with the fleet, he said.
At its annual results announcement Air New Zealand said it was looking to lift the standard of services domestically and on short-haul international. Thompson said the new carrier arrangement would provide a more consistent and higher quality service.
Direct services from Palmerston North to Sydney and Brisbane would be dropped as of March 30, with Wellington Airport expected to be the main beneficiary.
"While our direct service to Brisbane has been popular during some months, bookings on the direct service to Sydney are not strong enough for us to continue to justify a commercial Tasman operation out of the region," Thompson said.
No redundancies were anticipated, with staff affected by the changes offered other jobs. Moving services to Air New Zealand would enable passengers to take advantage of earning airpoints and seamless booking, Thompson said.
The review of Tasman services aimed to improve competitiveness and was started after the failure to secure a code-share agreement with Qantas.
"We are confident that the new measures announced today will continue to see Air New Zealand's share of the Tasman market strengthen, as it has done over the past 12 months, and clearly position Air New Zealand's Tasman and Pacific Island services into the future."