New Virgin Australia boss has tough choices on the Tasman says Forsyth Barr

A Virgin Australia Boeing 737 takes off at Auckland Airport. Photo / Grant Bradley

Analysts say slumping loads on Virgin Australia flights across the Tasman could force it to cut capacity or launch its budget arm, Tigerair.

While the airline says it is comfortable with its loads and remains committed to its transtasman services, Forsyth Barr analysis shows load factors fell between 7 per cent and 13 per cent on the Tasman in the first two months immediately following the messy divorce with Air New Zealand last October.

By contrast the Kiwi carrier's proportion of seats filled - load factor - was only slightly hit although revenue was squeezed as a result of rising capacity..

''In contrast VAH's (Virgin Australia's) position is unsustainable,'' analysis on the transport sector says.

New Virgin chief executive Paul Scurrah starts his job on Monday and has two choices.

''Either he should cut prices to stimulate demand which could be pursued through the launch of low cost carrier, Tiger, on the Tasman or cut capacity to reduce costs and improve utilisation.''

Forsyth Barr says competitors such as Air NZ will be hoping he pursues the latter.

''Which given the relatively fragile economics at VAH is more likely in our opinion.''

The Australian airline carries about 24 million passengers a year, with about 5 per cent of that capacity on the Tasman routes.

Following a seven-year partnership, Air New Zealand announced last April it was pulling out of the arrangement prompting Virgin to announce new routes across the Tasman, new full service throughout its planes and extensive marketing to beef up its presence here.

Air New Zealand, which has about 39 per cent of Tasman traffic, is operating now more widebody jets across the Tasman now and has put more capacity into Brisbane.

Asked about the analyst's report, a Virgin spokeswoman said three new routes which added an extra 17 percent capacity to its operations in the market and contributed to the lower load factor for November.

''We have already seen improvements in the following month and we expect this trend to continue as we increase our brand and route awareness in New Zealand and Australia,'' she said .

There had been an improvement in customer satisfaction metrics, which was a lead indicator of demand for services.

''It is also worth noting that most airlines experienced decreases in loads in November and December.''

There has long been speculation Virgin will use its budget arm across the Tasman.

Peter Harbison, executive chairman of CAPA – Centre for Aviation, late last year said he was ''99.5 per cent certain'' that Tiger would come into the market.

Air New Zealand had also been expecting Tiger to enter the Tasman market but Virgin appears to be in no hurry.

The airline has not ruled it out but is concentrating bedding down its expanded presence here. Tiger flies 21 domestic routes in Australia and since 2014 has been fully owned by Virgin.

The airline operates four all-economy Boeing 737-800s alongside the 11 Airbus A320s but is moving to an all 737 fleet.

Tiger has had some bad press for service and on time performance but has improved since Virgin had taken full control.