NZ air fare war hots up

Air New Zealand still hopes for a Qantas tie-up

A price war is brewing in flights between Australia and New Zealand, with two airlines slashing fares and a third saying it will join the fray next year.

Virgin Blue, Richard Branson's Australian discount carrier, said it would launch flights between Brisbane and Christchurch.

Its fares - at least initially - will be less than half the cheapest prices offered by Qantas and Air New Zealand, the two carriers that currently dominate the route.

Both airlines said on Tuesday that they were slashing their fares, a week after competition authorities vetoed an alliance between them as anti-competitive.

Tough times

The race to corner the New Zealand market is the latest stage in the rapid evolution of the Australasian aviation business, which has suffered sharply in recent years.

Aside from the global woes of the airline industry, carriers such as Qantas have been hit by rapid deregulation and a sharp reduction in regional travel caused by the Sars virus.

Analysts said the arrival of Virgin Blue could be good for all concerned, since the move towards lower fares might stimulate what has long been a relatively stagnant market.

Air New Zealand and Qantas, although technically rivals, are believed likely to avoid the most vicious aspects of price competition, since both hope to resubmit their application for an alliance.

Qantas is in the throes of a sweeping cost-cut programme, after falling into loss this year, and Air New Zealand was only recently bailed out by its government.