Aussie hints at price war ustralia's airline industry may be heading for a Christmas confrontation as two newcomers, Aussie Airlines and Kiwi International, prepare to fly on routes dominated by incumbents Qantas and Ansett.

The prospect of a fare war during peak season emerged after a Federal Court ruled that Qantas had to negotiate with prospective startup Aussie Airlines over access to its domestic terminals. All existing domestic terminal space in Australia is controlled by Qantas and Ansett under long-term leases, leaving a startup with little choice but to talk to a potential rival.

Despite the court ruling, Aussie Airlines' launch is not assured. Qantas has lodged an appeal against the decision and the process could take some time. But if Aussie does fly it could plunge Australia's domestic market into a repeat of the crippling discount battle which followed deregulation in 1989; the man behind Aussie is Bryan Grey, former owner of Compass Airlines, which collapsed in late 1991 after a bitter 12 month fare war with Qantas and Ansett.

Grey remains angry about the way Compass was forced out of business. 'It should have never happened and I have been very bitter ever since. I lost a fortune over it,' he says. He plans to operate up to 10 aircraft - probably used A300s - on prime trunk routes and will undercut the incumbents' fares by up to 25 per cent.

Grey says the proposed new carrier is considering three offers from financial backers, one of A$250 million (US$200 million) which would allow the purchase of aircraft and two of around $90 million which envisage leasing aircraft.

A comeback by Grey will trouble the incumbents more than the second threat from private New Zealand operator Kiwi International, which wants to connect Australia's main cities six times weekly.

The lesser secondary threat to price stability in the market emerged after the new Australian government agreed with Auckland to a 1 November start date for a single trans-Tasman aviation market, although details have yet to be worked out. Australia's previous government reneged on the original deal only days before it was due to come into operation in late October 1994.

Kiwi, which already operates services between New Zealand and Australia, plans to offer flights between Melbourne, Sydney, Brisbane and Perth, encompassing Australia's major trunk network. But its ambitions on frequencies appear to be limited.

Auckland-based flag Air New Zealand has declared it has no intention of flying domestically in Australia because of its imminent tie up with Ansett. The carrier's purchase of 50 per cent of Ansett awaits only final clearance from Australia's Foreign Investment Review Board, which is not expected to be a problem.

Tom Ballantyne

Source: Airline Business