Regional Airlines Face Cut Price War

Competition from cut-throat New Zealand and Australian airline operators is looming like a nightmare before the Pacific Islands region's clutch of mainly poor, mainly government-owned airlines.

In Fiji, hotels are jubilant about the imminent opening of cheap flights from New Zealand to Nadi by two operators, Freedom Air, owned by Air New Zealand, to begin on April 29, and from March 19 by Flight Centre, a travel company, which will use a Boeing 737-300 jet supplied by a New Zealand aviation company, Airwork.

Operating as Virgin Pacific, an Australian domestic airline, Virgin Blue is expected to be operating to Fiji from September and to Vanuatu some months before the Fiji flights begin, after new services to New Zealand are up and running well.

In Fiji, the Fiji Visitors Bureau and Fiji Hotel Association are dreaming of thousands more New Zealand and Australian visitors being landed at Nadi with money to be sucked out of them.

But the Association of South Pacific Airlines, (ASPA) is warning that competition from the highly profit-minded newcomers will imperil its mostly weak members such as the national airlines of Samoa, Tonga, Vanuatu and the Solomon Islands.

Even the strongest of ASPA's regional members, Fiji's Air Pacific, which has enjoyed a virtual monopoly on Fiji/Australia business under a code share deal with Australia's Qantas, is nervous.

Its New Zealand service is also a money-spinner for it, flying only against Air New Zealand. But the cheap Freedom Air and Flight Centre flights could drastically cut its profits.

ASPA's secretary-general, George Faktaufon, told Islands Business that the newcomers would bring "short-term gain" in the way of a flood of more visitors but "long-term pain" for regional airlines burdened by numerous national obligations and difficulties that didn't burden purely commercial airlines.

"Lack of sufficient tourism infrastructure in the region is clearly a major problem," he says.

"In Fiji and other Pacific countries, there are a shortage of good quality hotels. In this situation, a price war will likely lead to a fight for market share rather than increasing the number of in-bound tourists." Faktaufon predicts that passengers will benefit from some lower fares and high frequencies in the short term. But while airlines battle each other for bookings, "they will suffer from three possible harmful effects in the long run."

He says by forcing some airlines out of business, the survivors will be inclined to be less innovative and efficient.

After fare price wars end, the survivors will increase fares to compensate for the losses low fares cost them.

Thirdly, he says, there will be a trend towards ending services that are essential to some countries, but not profitable.

It is important for policy makers to understand that price wars can create economically devastating situations that take an extraordinary toll on carriers and their viability.

No matter who wins, the combatants will all end up worse off than before they joined the battle.

Flight Centre's package holiday trips will begin with six weekly return flights to Fiji from Auckland, Hamilton, Wellington and Christchurch. The company's rates are expected to be NZ$200 to NZ$300 lower compared with rates quoted for travel on other airlines.

Freedom Air is offering a "come on" NZ$199 one-way fare for Hamilton/Fiji travel.

But the offer is hedged by conditions that make the fare less attractive than it initially appears to be.

Air Pacific and Air New Zealand's lowest package holiday fares start at around NZ$650.

Air Pacific's chief executive, John Campbell, said the airline is ready to fight competition.

But he's warned the Fiji trade that the kind of customs cut-rate airlines are likely to deliver them won't be big spenders and could saturate accommodation that would otherwise be filled by people with more money to spend.