Between the lines: Branson threat to Aussie air profit

Sir Richard Branson's Virgin Blue airline will not fly domestic routes in Australia until just before the Olympics in September.

But we can be sure that Air New Zealand, as the new owner of Ansett, will be watching his every move.

Apart from its scarlet and blue paint job, Sir Richard's new airline is attracting the attention of our flagship carrier because it threatens, even if slightly, Air New Zealand's shared dominance of the Lucky Country's domestic network.

Qantas and Ansett divvy up 90 per cent of the profits on flights within Australia.

This comfortable arrangement has persisted uninterrupted for years, with the exception of cut-price Compass, which flew briefly before crashing and burning amid a wreckage of litigation.

Some ruthless price-cutting by Qantas and Ansett helped shoot down the thinly capitalised Compass.

But Virgin Blue and another domestic competitor, Impulse Airlines - which first took off last month - look to be made of sterner stuff.

The Branson airline has all the signs of being in for the long haul.

Flying out of its Brisbane base, Virgin Blue will launch with five 737-400s. A further 10 are due to be introduced later.

It is not clear how well capitalised the airline is, but it is probably financially robust enough to do the job.

After all, Singapore Airlines is parent company Virgin Atlantic's major shareholder and presumably backs the start-up in principle.

The competitive issue for Air New Zealand's Ansett is what sort of airline Virgin Blue will be. Will Sir Richard compete with the incumbents on price or on quality?

He is certainly looking to establish a low-cost airline - for example, by filling his seats with the least possible recourse to the retail trade whose commissions are 7 per cent or more. (The name on the fuselage reads virginblue.com.au.)

But that does not necessarily mean Virgin Blue will provide a low-price service, which would dilute the value of Virgin's brand.

Anyway, Impulse is already competing on price. Impulse whose maiden route is the busy Sydney-Melbourne one, does not offer food, loyalty programmes or other frills - just cheap fares.

The formula is working all right so far. Initial average loadings have hit a claimed 53 per cent (break-even is around 50 per cent). Impulse does not, however, attract many of the high-margin business flyers who generally pay twice the average discount fare.

Meantime, aviation analysts are fascinated to see how Qantas and Ansett respond to the newcomers. The consensus is that they will not try to kill them quickly with predatory pricing. Sir Richard's pockets, at least, are probably too deep for that.

Also, he has already proved his mettle against far bigger opposition. In Virgin Atlantic's early days, it was Sir Richard who exposed dirty tricks by British Airways and forced chairman Lord King to apologise and resign.