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Airline war imperils Air Pac

Monday, October 05, 2009

What started as a simple idea by Australian company Virgin Blue to boost aircraft productivity has turned into a full-blown airline war between the Qantas and Virgin groups, which threatens the survival of Fiji's national carrier Air Pacific.

Until a few years ago, the route between Sydney and Nadi was, in airline terms, a sleepy hollow with a single daily Boeing 747 jumbo monopoly service operated by Fiji's Air Pacific, owned 46 per cent by Qantas, with whom it codeshares.

Under Qantas's wing, Air Pacific has almost always been profitable, earning more than $20 million in 2007-08. For a leisure destination, discount fares have been high. The best fares averaged $700 to $800 return until 2004, when Virgin Blue offshoot Pacific Blue entered the route, dropping fares to as low as $269 one-way.

Now, Pacific Blue wants to give the route to sister airline V Australia - which Virgin Blue uses to fly to the US - using V's long-haul 361-seat Boeing 777-300ERs, which otherwise sit on the tarmac in Sydney between US services. These would replace daily Pacific Blue 180-seat Boeing 737-800s.

"The introduction of V Australia will enable the Virgin Blue Group to maintain the competitive pressure, which has led to substantially reduced leisure-sector tariffs on the route, to introduce real competition in the premium market and significantly increase air-freight capability and competition," Virgin told the Australian Federal Government's International Air Services Commission in its application for capacity on the route.

"The lower unit cost of the B777-300ER will enable V Australia to operate a virtual low-cost cabin in the aircraft that will not only match fares already introduced by PBA but also provide the opportunity for tariffs even lower than those currently available in the market."

Qantas decided it was being out-maneuvered and belatedly applied to the commission for capacity that V Australia was seeking to use under the old Australia-Fiji air services treaty, which hasn't been changed for years.

There are a total of 1760 weekly return seats between Sydney and Nadi available to Australian-based carriers. Qantas wants 1491, to enable subsidiary Jetstar to launch a daily service on the route with 213-seat Airbus A321s, and Virgin wants 1267, to enable V Australia to upgrade Pacific Blue's daily 737s with the larger 777s. The commission has declared the two applications a contest with only one carrier able to carry out its capacity plan within the existing treaty.

Since Qantas has signalled that it plans to sell its 46 per cent stake in Air Pacific - leaving the carrier brutally exposed to the new Australian competition.

Economist Dr Biman Prasad believes that this may not be the case as the competition may even help boost the service delivery by the national carrier.





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