Jetstar starts airfare price war with $39 flights to Australia

Yesterday's launch of the Qantas cut-price carrier Jetstar has prompted a price war that will further pressure Air New Zealand as it struggles to deal with high fuel prices and staff pay demands.

Pacific Blue and Air NZ subsidiary Freedom Air have already moved to match Jetstar's introductory special fares of $39 for a one-way trip across the Tasman.

Freedom Air tried to deflect some of the attention away from Jetstar's arrival by showing off new business class seats in its Airbus A320 planes.

Eight leather seats are being installed in each aircraft, which will have extra leg room and cost $100 more than standard economy seats.

The industry is now watching how Qantas will deploy its low-cost brand on other routes.

Jetstar chief executive Alan Joyce said there was room for Jetstar and Qantas to fly the Tasman.

"It's a bit like the domestic market in Australia, where both brands are doing well," he said. "Both are making money and expanding. We don't see the Tasman as any different."

Qantas would continue to grow where its product and full service offering commanded a premium.

The other airlines, while copying Jetstar's cheap initial fares, were quick to say they were a marketing gimmick and not sustainable.

Jetstar is looking to attract business travellers.

"There is a component of the business traffic we think will be attracted to the service, particularly because of the destinations and frequency," Joyce said.

Jetstar had picked a Christchurch base because of the "huge potential" of the tourism market, particularly from Australia.

It was going to be putting "a lot of marketing dollars" into promoting New Zealand.

Jetstar's new Tasman services will also be closely linked into the Qantas international system, which meant someone flying from London to Christchurch could check their bags in for the whole journey and get one connecting fare and ticket.

About 100 people are being recruited by Jetstar for its New Zealand operation, including flight attendants, mechanics and baggage handlers.

Cabin crew will be recruited locally, using Qantas' 'jetconnect' subsidiary, which flies jets on the domestic main trunk, as will engineering services and airport staff.

Most at risk from the Jetstar move into Christchurch is Pacific Blue, the Virgin Blue offshoot that has been flying from Christchurch for the past 18 months.

Pacific Blue chief executive Tony Marks said Qantas had copied his airline at every stage.

"We are flattered that the competition has recognised that Pacific Blue's strategy and business plan is the way of the future, in the same way they have recognised the value of Virgin Blue in Australia."

He said Qantas was now stepping out of the market, leaving passengers with a poorer service.