Fares may rise after airline quits

Pacific Blue's decision to quit the domestic market could lead to higher fares and fewer people being able to afford to fly, says New Zealand's biggest travel agency.

Tens of thousands of the airline's customers will have to change their travel plans after the budget airline announced it will pull out of the domestic market on October 18.

The decision is part of a network-wide review by Pacific Blue's Australian owner, Virgin Blue, and returns the domestic main trunk routes to Air New Zealand and Jetstar.

Pacific Blue flies to the three main centres, as well as Dunedin and Queenstown.

Passengers will be rebooked on Air New Zealand as close as possible to their original travel time, or can apply for a refund.

Air New Zealand said it would put on extra flights for Pacific Blue passengers if needed.

Virgin Blue and Air New Zealand are seeking approval from authorities to merge their trans-Tasman operations. The alliance does not include the domestic network.

Pacific Blue immediately forced airfares down when it launched three years ago, but that had come at the expense of profits.

House of Travel retail director Brent Thomas said Pacific Blue's departure could lead to overall fares increasing.

Low fares and specials would still be available, but be harder to get, he said.

"You have gone from three players down to two, so the lower-class fares are just not going to be as available as they were previously."

Increased competition and cheap fares had led to more people travelling.

Mr Thomas said the number of passengers affected ran into the tens of thousands.

Virgin Blue chief executive John Borghetti said the New Zealand domestic services had lost tens of millions of dollars with no prospect of making a profit.

Competition intensified when Qantas replaced New Zealand domestic services with budget arm Jetstar last year.

Three airlines offering significant capacity in a market with a population the size of New Zealand was not sustainable, Mr Borghetti said.

Jetstar will expand its domestic operation with the addition of a fourth Airbus A320 early next year, taking its trans-Tasman network to eight aircraft.

It has announced plans for a seventh plane.

Jetstar chief executive Bruce Buchanan said Air New Zealand had an 85 per cent share of the domestic market, with the remainder split between Jetstar and Pacific Blue. Jetstar operates 164 flights a week between Auckland, Wellington, Christchurch and Queenstown.

Air New Zealand will increase capacity next year when it starts to replace its Boeing 737-300 jets with larger Airbus A320s.

- © Fairfax NZ News