THE PRESS MONDAY, JUNE 26, 1989. Air N.Z. in Australia

Press, 26 June 1989, Page 20

THE PRESS MONDAY, JUNE 26, 1989. Air N.Z. in Australia

Ever since Ansett New Zealand began flying a domestic service in New Zealand, Air New Zealand has been vocal in its demands for the opportunity to fly domestic routes in Australia. It soon might get the chance. The Australian Industries Assistance Commission has issued a draft report in which it says that New Zealand airlines should have full access to Australian domestic routes, as part of a three-stage deregulation of Australian aviation. The first stage would be the relaxation of controls on Australian carriers, followed two years later by opening the Australian market to New Zealand airlines. After a further two years the market would be totally deregulated, allowing other foreign airlines into the market. The Australian Government is not expected to respond to specific recommendations in the report until a final version is completed in September, but the Federal Transport and Communications Minister, Mr Ralph Willis, has confirmed that the Australian Government intends to liberalise the industry. He had earlier commented on the “justifiable argument” of Air New Zealand for a special exemption from controls on foreign airlines because of the closer economic relations agreement, and because of the 19.5 per cent shareholding that Qantas has in Air New Zealand. He has said also that protection of Qantas, in particular, would be considered less important than the interests of tourism and the economy as a whole.

All this might seem like Air New Zealand’s dream come true; it might equally prove a nightmare for the airline now that its challenge seems like being met. Given the daunting complications and obstacles that would confront Air New Zealand should it decide to try to become a force in the Australian domestic market, its demands for access seem to have a fair element of tit-for-tat about them.

The unequal access argument did not close the New Zealand market to Ansett as Air New Zealand had hoped it would; it would be a shaky foundation on which to launch a retaliatory foray into Ansett’s home territory. Curiously, Air New Zealand’s tie-up with Qantas probably will, make it harder for Air New Zealand to get into Australia now than it would have been 12 months ago. Qantas must brace itself for renewed competition at home and is likely to use its considerable influence to dissuade Air New Zealand from adding to that competition. Two aspects arise from any suggestion that Air New Zealand might take up domestic rights in Australia. They are whether the airline would commit itself to a total domestic service, or whether it would satisfy itself simply with a domestic link-up between the cities it already serves on its international flights. Qantas was allowed limited domestic rights only recently and may now carry international passengers on its internal sectors. Until gaining this right to fly domestic passengers who had completed an international flight (on any airline), or who were intending to join an international flight, Qantas had to fly the domestic sectors of its international services with something like 10,000 empty seats a month. If Air New Zealand was determined to make an impact on the Australian domestic

scene, the costs would be enormous. Australia’s internal air services .are dominated by Ansett and Australian Airlines; Qantas now has a share and several other smaller airlines have achieved a respectable share of particular routes or services. In October, next year, these smaller airlines will be given freer reign to compete with the big two.

Two years further down thp track, when Air New Zealand would be allowed in if the commission’s advice is accepted, Air New Zealand would be at least fourth and possibly even fifth in the queue, starting well behind local established airlines. The manifold costs that Air New Zealand would incur flow mainly from the need to provide terminals, aircraft, and staff.

Unlike in New Zealand where terminal buildings have customarily been provided by airport authorities, the Australian approach generally requires airlines to provide their own. The establishment costs would be heavy. At Sydney the task might be nigh impossible simply, because the space for another terminal is not available. Both Ansett and Australian Airlines wish to expand their Sydney terminals, but have been unable to do so because there is not enough room.

If Air New Zealand was to contemplate a full domestic service in Australia, it would be embarking on an operation far bigger than it already has in New Zealand. Because of the very long sectors involved, the airline would probably have to base crew separately in Western Australia, for instance, and would need a bigger fleet of aircraft than it has in New Zealand.

The airline covers its domestic jet routes in New Zealand with a dozen aircraft dedicated to that service supplemented by its international aircraft. Something like 20 aircraft would be needed to compete on the Australian domestic market; the cost of establishing the fleet and its support services would be financially daunting. Actually finding suitable aircraft in the face of high world demand and long waiting lists at the manufacturers would be equally troublesome. Air New Zealand already faces a big outlay on new aircraft for its New Zealand business. To meet the new noise requirements that will be imposed at Wellington airport progressively over the next five years, the airline is looking at a bill of about $5OO million to refurbish its New Zealand domestic fleet.

Air New Zealand’s corporate affairs manager, Mr Richard Gates, has been reported as saying that the airline is still interested in flying Australian routes, but wants to see how deregulation works before committing itself. The caution is understandable in view of the many impediments to the venture, including those mentioned above.

For all its loud demands for admission to Australia’s domestic aviation industry, Air New Zealand might well content itself with filling up empty seats on such domestic sectors as its international fleet happens to be flying at the time. Perhaps the ability to top up in this way was all that the airline had in mind all along. A bigger commitment, even if Qantas were to agree to it, would be a risky undertaking indeed.