Air Pacific, Fiji's flag carrier, faces the imminent prospect of fare discounting in markets that are inelastic due to Fiji's hotel room shortage.

Flight Centre, New Zealand's largest travel agency, is launching charters to Fiji in March with a local company called Airwork. In April, Freedom Air, Air New Zealand's (ANZ) discount unit, is returning to Fiji with scheduled services after a four-year absence. By mid- year ANZ itself plans to cut fares on Pacific island routes, including Fiji. Finally, Pacific Blue, the offshore arm of Virgin Blue, expects to launch discount flights from Australia later this year.

In a market with capacity to grow, this would normally be good news for travellers and businesses because lower fares stimulate traffic. But Fiji's room shortage is so severe that Air Pacific recently delayed the planned delivery of a new Airbus A330.

John Campbell, Air Pacific's chief executive, told Air Transport Intelligence, the online sister of Airline Business: "Lack of accommodation inevitably means the low-cost carriers will fight a battle for market share rather than market expansion."

Source: Airline Business