Red ink too much for Pacific Blue

Pacific Blue racked up tens of millions of dollars in losses flying New Zealand's domestic routes before finally calling it quits.

The Australian-owned budget airline will quit the routes on October 18, after three years flying between the main centres, plus Dunedin and Queenstown.

It will use some of the freed-up capacity to add five flights to its existing trans-Tasman services.

The move is part of a network-wide restructuring by parent Virgin Blue announced yesterday, and will return the domestic market to a duopoly between Air New Zealand and Jetstar.

Jetstar announced yesterday that it would expand its domestic services, because of Pacific Blue's move.

Wellington International Airport chief executive Steven Fitzgerald said Pacific Blue's decision would reduce capacity on the main trunk by 12,000 seats a year.

The airline accounted for about 12 per cent of the airport's main trunk traffic.

Air New Zealand and Jetstar could increase their capacity to meet passenger demand, he said.

However, Pacific Blue has been credited with lowering the cost of domestic travel with fares dropping by about 20 per cent when it launched.

"But regrettably, having done that, we now are not making a return," Virgin Blue chief executive John Borghetti said.

"Since we started three years ago we have lost tens of millions of dollars.

"What is more concerning is that going forward there is really no prospect of this operation turning a profit," he said.

Virgin Blue and Air NZ are also seeking approval from authorities to merge their trans-Tasman operations under an alliance.

Mr Borghetti said the decision was separate from the planned trans-Tasman alliance with Air NZ to better compete with Qantas and Jetstar.

The Tasman continued to be an extremely competitive and difficult market, he said.

He would not speculate on Pacific Blue's future on the Tasman if the alliance was not approved.

Growth on trans-Tasman routes would result in up to 100 jobs being added to the 450 New Zealand-based staff in Christchurch and Auckland.

However, the Engineering, Printing and Manufacturing Union (EPMU) says the move would cost up to 200 jobs among suppliers and service providers to Pacific Blue's domestic services.

EPMU national secretary Andrew Little said nearly 130 ground workers in Wellington, Auckland and Christchurch would be adversely affected, along with some domestic cabin crew.

Mr Borghetti said Pacific Blue would expand as an international medium-haul airline with flights across the Tasman, to the Pacific Islands and to Southeast Asia.

The restructuring would also free Virgin Blue's long haul carrier V Australia to focus on the growing demand for services from Australia to the United States, and drop its Fiji services which would be taken over by Pacific Blue, he said.

- © Fairfax NZ News