Air New Zealand’s trans-Pacific monopoly threatened by US carriers

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Written by Linda Hohnholz

WELLINGTON, New Zealand – Air New Zealand’s valuable monopoly on non-stop flights between New Zealand and mainland North America appears increasingly under threat as American carriers consider launchi

WELLINGTON, New Zealand – Air New Zealand’s valuable monopoly on non-stop flights between New Zealand and mainland North America appears increasingly under threat as American carriers consider launching services between Auckland and California.

Qantas Airways abandoned its then loss-making Auckland-Los Angeles flights in May 2012 and Air NZ has been the only carrier offering trans-Pacific flights from Auckland to Los Angeles, San Francisco and Vancouver since. Air NZ’s long-haul division, which had been making a loss since the global financial crisis, returned to a profit in the first half of the 2013 financial year, in tandem with the absence of competition on the trans-Pacific route.

But industry sources said United Airlines was now weighing the potential of the Auckland-San Francisco route with a Boeing 787 and Qantas partner American Airlines, seeking to become the dominant US carrier in Los Angeles, was looking at the Auckland-Los Angeles route.

Auckland Airport and United declined to comment directly on the speculation. The airport said it was in discussions with a number of international airlines about flying to Auckland and United said it “continually assesses” new route opportunities. United and Air NZ are both members of the Star Alliance but they do not have a trans-Pacific joint venture and therefore compete for customers. United had considered entering the Auckland-Houston route but shelved those plans in June 2012.

Air NZ chief executive Christopher Luxon last week said his airline conducted “war games” on different competitive scenarios, such as competition entering the trans-Pacific route.

“We are pretty prepared for that,” he told The Australian Financial Review. “I think with our financial position so strong we feel comfortable about our ability to respond to any competition.”

In recent months, Air NZ has increased the number of flights to Los Angeles to three daily at peak times of the year and has been examining the possibility of adding a third destination in the mainland US. The added capacity could have the benefit of making the market look less attractive to rivals.

But the prices charged by Air NZ on the Auckland-Los Angeles route demonstrate it benefits from the monopoly. A mock booking on Expedia’s Australian site for flights in September shows a round-trip ticket from Auckland to Los Angeles on Air New Zealand costs $2091. That compares with $1667 for a direct Sydney-Los Angeles flight, which is nearly 1600 kilometres longer, on Qantas the same date. And Air NZ offers a Sydney-Los Angeles ticket, via Auckland, for $1507.

Qantas is not believed to be interested in restarting Auckland-Los Angeles flights itself, but it is looking to grow in the New Zealand market and would benefit from joint venture partner American Airlines entering the route to further enhance its appeal. Last week, Qantas offered a “status match” that would allow high-status members of Air NZ’s Airpoints program to immediately receive gold status with Qantas Frequent Flyer.

“It is an extremely important market for us, the New Zealand market,” Qantas chief executive Alan Joyce said. “It is the largest international market into Australia and that is why our second largest frequent flyer base is there. Our frequent flyers are a key part of making sure we maintain our competitiveness in that market.”

Air NZ is the largest shareholder in Virgin Australia Holdings but the pair do not co-operate on trans-Pacific routes, where Virgin instead has a joint venture with Delta Air Lines.

“We fly a lot of Australian traffic through New Zealand and onto North America,” Mr Luxon said. “And so we view Virgin as a competitor on the North American route.”

Virgin and Delta are seeking renewed competition approvals for their trans-Pacific joint venture. Mr Luxon said Air NZ has been supportive because Virgin, which is not a member of the Star Alliance, needs a US partner for connecting flights in North America.

But he said on Air NZ’s planned flights from Auckland to Buenos Aires from December he would seek a codeshare with Virgin due to the high amount of Australian traffic expected on that route.

About the author

Avatar of Linda Hohnholz

Linda Hohnholz

Editor in chief for eTurboNews based in the eTN HQ.

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