Virgin opens up service in New Zealand

August 23, 2007

Virgin Blue has announced that it is to start offering domestic flights within New Zealand starting November. The third commercial flight company in New Zealand will start by focusing on New Zealand's three major cities, Auckland, Wellington and Christchurch.

Budget airline, Pacific Blue Airlines, which is run by Virgin Blue, already runs flights in New Zealand to international destinations. And, despite only major cities currently being serviced, smaller cities and towns will be considered on November 15.

The service is set to start on November 15, with a special deal currently available of NZ$39 for all services per ticket for one way. This deal will be available until the latest of September 16. The normal online air fares range from $69 for Auckland to Wellington and Christchurch to Wellington. These fares are 22% cheaper than those offered by Air New Zealand. An air fare for Auckland to Christchurch is $10 more expensive at $79.

Virgin Blue Chief Executive Officer, Brett Godfrey, said they expect to face a few hard years while the new services are starting. "We expect actually to lose a little bit as we find our feet but our loss will be the travelling public's gain."

Sir Richard Branson, Chairman of the Virgin Group, said that he was "absolutely delighted" that Pacific Blue is set to enter the New Zealand domestic market, "bringing its unmistakable fun, flair and affordability to travel within New Zealand." It was first rumoured that when Sir Branson was in New Zealand earlier this year that a domestic service was to begin, "[Sir Richard Branson] promised that domestic services were something of interest to us under the right circumstances and at the right time."

Godfrey describes the new services as a major investment and a long term commitment. "The time is right to bring some much needed competition to the existing duopolistic market."

Due to Pacific Blue starting a domestic service, New Zealand's flag carrier, Air New Zealand, has lost 8.6% on the share market in total this week. The day before Pacific Blue's announcement, Air New Zealand lost $179 million to due to share value drop. Head of research at Forsyth Barr, Rob Mercer, said, "Air New Zealand has fallen $1 billion in value in the last couple of months, yet their earnings have got stronger."

Mercer says, "Call me an optimist but competition can sometimes be a good thing. And if someone really puts in a product that stimulates the market and grows it, it can actually be a good thing, and Air New Zealand being the incumbent can actually be quite a beneficiary out of that environment."

The Chief Executive of the Travel Agents Association, Paul Yeo, describes New Zealand's current airfares as too high, due to lack of competition. Yeo now expects this to change with Air New Zealand and Qantas matching Pacific Blues prices.

Air New Zealand did in fact drop its cheapest airfares to match those offered by Pacific Blue, effective September 1.

For the new flights, Pacific Blue is set to add two new Boeing 737-800 to their existing fleet of 53 Boeing 737s.

Australian aviation analyst Peter Harbison said Air New Zealand could come under further pressure on domestic routes with Singapore-based budget airline Tiger Airways expected to cross the Tasman by the middle of next year. Australian aviation analyst, Peter Harbison, expects Singaporean airline, Tiger Airways, to be operating in New Zealand by mid-2008.