From November 1996, any airline with over 50% Australian and/or New Zealand ownership has been allowed to fly freely between the two countries or within them, subject only to border restrictions. That this new freedom has not precipitated a rash of low-cost start-up carriers and a scramble for new routes says more about the market strength of the established trans-Tasman carriers, than it says about the new opportunities the single aviation market (SAM) has put in place.
Large market
Two months before the SAM was opened up, the new trans-Tasman aviation environment had already seen the demise of New Zealand start-up carrier Kiwi Travel. Kiwi had identified a surprisingly large market for low-cost travel bypassing Auckland, operating from Hamilton, the home of New Zealand's fourth-largest urban population and a major regional population centre, and from Invercargill in the South Island, to Brisbane, Perth (Western Australia), and Sydney. The fledgling airline only failed when ambition lured its principal, Ewan Wilson, into launching operations to Australia from Christchurch, Air New Zealand's (ANZ) second-busiest domestic port, where he met a commercial blockade which a more experienced operator might have anticipated.
The Kiwi initiative, however, prompted ANZ to put in place a defensive strategy, which, given the small size of the market, will be a powerful deterrent to any newcomer. Freedom Air, wholly owned by the Mount Cook Group (in turn wholly owned by ANZ), is flying 17 weekly round-trip flights from Hamilton, Palmerston North and Dunedin, to Brisbane, Coolangatta and Sydney. Freedom flies a single-class 130-seat Boeing 737-300 "damp-leased" from El Salvadorean national airline TACA. At the end of March, that aircraft will be replaced with another 737-300 from Switzerland, dry-leased for a five-year term through a Hong Kong agency, and employing Freedom's own flightcrews - a signal that the carrier is here to stay. With a regime of cut-price capacity-control fares, the airline has been achieving a 70-90% load factor in the highly seasonal market, and flying over 4,000h annually. About half the carrier's business is sold by direct telephone contacts; the other half through travel agents, which receive a flat NZ$20 ($14) "finder's fee".
Further afield, the new equity alliance between Ansett and ANZ (each of which has strong links with US and Asian carriers) has polarised the market between the alliance and Qantas and its commercial allies, setting the stage for intensifying competition , and erecting formidable hurdles for newcomers.
The American/British Airways/Canadian and Qantas links give the group an almost mirror-image range of commercial agreements to those represented by ANZ, Ansett, United, and (again) Canadian. The strategic re-alignment of Asian links is now the focus. Sydney-based analyst Peter Harbison from the Centre for Asia Pacific Aviation, predicts that Qantas will follow BA's initiatives when the two carriers' existing connections are not in harmony. He also suggests an obstacle to the smooth cementing of alliances may be the slight divergence of interests between Ansett Australia, 50% owned by ANZ, and Ansett International, in which the New Zealand carrier's stake is limited to 25% by foreign-ownership restraints. Before and during its international start-up, Ansett forged many links in Asia and beyond, not all of which are aligned with those of ANZ. For both groups, a large number of Asian carriers including those of Hong Kong, Indonesia, Japan, Korea, China, Malaysia, Singapore, Taiwan and Thailand are likely to be drawn to one or the other group as pressure mounts to form new alliances.
In their own markets, both groups retain a powerful range of sales and marketing networks, along with all-reaching domestic links in Australia and North America, although ANZ dominates in both aspects within New Zealand. Qantas says, however, that regional and domestic connections are amply available through Ansett New Zealand, which was severed from Ansett Australia at the insistence of the Australian Government to protect the carrier's foreign-ownership and control status with foreign governments.
Sydney-Auckland is the world's sixteenth strongest city pair, and initiatives to resolve cross-border issues between the two Governments, now grinding towards an outcome, are expected to open new, but as yet unquantified, markets for domestic-style travel between the two countries.
Market boost
Some 50% of Freedom's market originates in Australia (with a population of 18 million against New Zealand's 4 million); and the Freedom and Kiwi initiatives boosted a stagnant market by some 20%, signalling that the market may be bigger than any player believed. The need for responsive innovation has not completely escaped the major carriers, which have already begun to break the mould by adding more trans-Tasman direct flights in smaller (737) aircraft.
New competitiveness is now expected to spring from the constant focus on cost-reduction initiatives, which have already boosted ANZ's results, and from the long-awaited new direction expected from Ansett under the leadership of former Cathay Pacific chief executive Rod Eddington. This will bring Qantas under fresh pressure, and recent history has shown that, if ANZ, Ansett and Qantas do not reach out for new initiatives, somebody else will assault the barriers.
Source: Flight International
