Qantas in drag - but Jetstar's a whole new roo

JAMES DAVIES/AFR

QANTAS IN DRAG: JetStar, the new discount player in the domestic flights market, has the potential to shake up Air New Zealand and Pacific Blue.

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Blink once and you'd be forgiven for thinking not much has changed in airline land with the arrival of Qantas budget player JetStar on this side of the Tasman. Merely swapping one variety of flying kangaroo for another.

Newcomer JetStar's flight schedule, for example, is pretty well a mirror image of departing Qantas's, flying largely the same routes at the same times and with the same frequency or rather, lack of it.

And no reinstatement of the 28 weekly domestic flights which Qantas suddenly axed late last year and early this, and which created angst among frustrated passengers.

But blink twice, and you realise there's the possibility at last for some real changes in the game with the arrival of JetStar. Changes that won't necessarily be all bad for incumbent Air New Zealand, and which offer real upside for the New Zealand consumer.

Forget the frenzy for the 20,000 $1 fares which JetStar announced last week. Chief executive Bruce Buchanan pretty well said, "well, what else did you expect?", when he signalled the start of the two-hour scramble that was about to unfold following Tuesday's launch on Auckland's waterfront. A discount airline would not be worth its salt if it failed to pull some such trick from its sleeve.

No, the real change starts with the prospect of getting rid of the tired old red 'roo that Qantas had become on this side of the Tasman.

Airline analysts say Qantas pretty much stopped spending on developing its services in New Zealand over the past five years, and that it has probably been losing more money than it makes.

JetStar might still be Qantas in drag, but the subsidiary's body language is something else. It won't be beaten on price, says its aggressive advertising pitch. It will offer any customer a 10% discount on any lower fare obtained elsewhere.

More hype from the new boy, perhaps. But, says market analyst Arthur Lim, JetStar had arrived not just with "serious intent", but with the potential to change the dynamics of air travel within New Zealand.

Like any discount carrier, it had initially targeted main trunk routes where it could at least live alongside the dominant national carrier.

But by using Airbus A320 aircraft, they can fly fewer weekly flights than Qantas (84 as against 89), yet carry more passengers (up 43%) "and that will help significantly towards achieving the sort of cost efficiencies which drives better profits and maintain lower fares".

Forsyth Barr research head Rob Mercer said New Zealand could have in JetStar "a more committed second carrier than we have ever had before".

Besides the bigger, newer and more efficient aircraft, the newcomer had the potential to offer a greater level of competition to Air NZ in the discount end of the domestic market.

The 10% deal on air fares would not be difficult to achieve "when you charge extra for baggage and in-board food and drink", Mercer said.

"But the JetStar model offers the possibility of much greater investment in this market than Qantas has done," he said. And as economic conditions improved over the next five years, he was expecting to see JetStar offering "more services and greater frequencies than we have seen from Qantas in the past five".

This could mean a hit to Air NZ's market share, Mercer said. "The question then is how much the JetStar presence will grow."

Even so, Mercer expects Air NZ to be far more vexed about the downturn in the global aviation industry than about the arrival of JetStar in New Zealand.

For the first time in decades, the national carrier had the premium (mainly business) end of the market left to itself. At the same time, it remained competitive in the leisure market through its "grab-a-seat" campaign, and reconfiguring its 737 aircraft so it was able to offer more discounted seats on each flight.

Mercer said Air NZ had an "artificially high" market share, which would inevitably come down. "At the same time JetStar has already grown the local market with its 20,000 $1 tickets," he said.

JetStar points to its Australian experience to suggest what could happen in New Zealand as a result of its presence here. Corporate relations manager Simon Westaway said one in five passengers carried by Jetstar in Australia were business, not leisure travellers.

And while JetStar's market share when it began five years ago was 11%, it had now grown to 17%.

He said JetStar had been successful in pitching discount fares 20% below the benchmark in markets in Australia and Asia. "Where the low water mark rests in New Zealand will depend on the competitive dynamics," he said.

Westaway said expansion in New Zealand was on its agenda. "But right now we are not particularly focussed on our competitors," he said. "We want to create a critical scale by achieving cost advantages on our Auckland and Christchurch-based business.

"If we can do that, we are confident we can make a real imprint on the market."

JetStar will become the second biggest carrier when it starts operations on June 10, and Qantas leaves the scene. The big loser in all this could be Pacific Blue, a subsidiary of Virgin Blue in Australia and which runs a limited domestic service on main trunk routes here, as well as on the trans-Tasman.

Lim said Pacific Blue would suffer as fewer Qantas passengers arriving in New Zealand would travel domestically on Pacific Blue.

Mercer said Pacific Blue's future in New Zealand probably had more to do with Virgin Blue in Australia, where it was under pressure. It last week shed 400 jobs in Australia and grounded five of its aircraft.