Air New Zealand's Chief Operating Officer, Andrew Miller, and Airline Planning Group Managing Director David Bental this morning gave evidence on the impact of Value Based Airlines, such as easyJet, Virgin Blue and Southwest Airlines, at the Commerce Commission hearing on the proposed alliance with Qantas.
A summary of the evidence follows.
- VBA categorises airlines that focus on point-to-point short haul operations, start from a very low "greenfields" cost base, have high asset utilisation, have a simple fleet, low distribution costs, flexible employment conditions, low on board product costs and no (or very limited) arrangements with other carriers.
- A VBA will enter the Tasman and New Zealand domestic markets because:
- Customers have accepted VBA services
- There are no constraints preventing VBA entry
- The response of incumbent airlines can be managed by a VBA
- Air New Zealand Express Class is not a deterrent to a new VBA entering the market
- The Tasman and domestic New Zealand routes are ideal for successful VBA entry because:
- All domestic New Zealand and Tasman routes (except Perth) are ideal stage lengths for a VBA
- There is a sufficient population base to support a VBA
- Air New Zealand introduced many of the aspects of a VBA model through Express Class in October last year. The results have been:
- Passenger growth of over 23%
- Internet sales exceeding 35%
- Growth in market share over capacity share
- The success of Express Class increases the likelihood of success of VBA entry because:
- It has demonstrated that the New Zealand market will readily accept a VBA offering
- There is still a significant cost base differential between
Air New Zealand (with its network and legacy costs) and Virgin Blue
- Air New Zealand's domestic profitability has improved since the launch of Express Class
- A VBA entering the market will:
- Reduce fares
- Stimulate additional customer demand
- Cause an ultimate reduction in FSA capacity in the market
- VBA entry has shown that passengers have a much higher degree of demand elasticity than previously thought:
- Business travellers are making up an increasing percentage of VBA traffic. For example, easyJet.
- Express Class has demonstrated higher elasticity than expected
- Business travellers' perceptions of a reasonable fare are affected by other available fares
NOTE: The content of all Air New Zealand media releases are accurate at the time of issue, as stated at the top of each release. For updates on any changes, please contact Air New Zealand.
Air New Zealand is proud to be a member of Star Alliance. The Star Alliance network was established in 1997 as the first truly global airline alliance to offer worldwide reach, recognition and seamless service to the international traveller. Its acceptance by the market has been recognised by numerous awards, including the Air Transport World Market Leadership Award, Best Airline Alliance by both Business Traveller Magazine and Skytrax. The member airlines are: Adria Airways, Air Canada, Air China, Air New Zealand, ANA, Asiana Airlines, Austrian, Blue1, bmi, Continental Airlines, Croatia Airlines, EGYPTAIR, LOT Polish Airlines, Lufthansa, Scandinavian Airlines, Shanghai Airlines, Singapore Airlines, South African Airways, Spanair, SWISS, TAP Portugal, Turkish Airlines, THAI, United and US Airways. Aegean Airlines, Air India, Brussels Airlines and TAM have been announced as future members. Overall, the Star Alliance network offers 19,500 daily flights to 1,071 airports in 171 countries.
For more information about Air New Zealand visit www.airnewzealand.com and for more information about Star Alliance visit www.staralliance.com.