New Carrier Entrants Cause Thunder Down Under

<B>New Carrier Entrants Cause Thunder Down Under</B>

By Angela Spiegel

Two new low-fare carriers, Impulse Airways and Virgin Blue, have turned the Australian domestic airline market on its head. Not only have airfares dropped by more than one-third, but more people are flying more often. Business travel buyers are considering including dual airline contracts, and even car rental operators are singing the praises of Impulse and Virgin.

As for the flag carriers, many people suspect Qantas Airways might have been encouraged to bring forward the review of its aging fleet because of the newer aircraft introduced by the startups, but officially that's been denied. Ansett Airlines, meanwhile, has been preoccupied with its own takeover by Air New Zealand. But both Qantas and Ansett have matched the new carriers' low fares.

Craig Smith, managing director of First Travel Management, said a lot of his business clients for the first time are considering carriers other than Qantas and Ansett. "They are certainly taking the challenge to Qantas and Ansett, to the point where we are finding there is a lot of tripartite negotiations going on."

In fact, the Australian Department of Transport released figures for October 2000 for routes flown by one or both of the new carriers, which tell the story of market stimulation, and not just because of the Olympics. In October, passengers increased 13 percent on the Melbourne-Sydney route, 28 percent on Brisbane-Sydney and 25 percent on Brisbane-Melbourne, compared with the same period in 1999. To further illustrate the trend--independent of the Olympics--the growth in passenger activity in December, compared with December 1999, was even more spectacular. According to DOT, 2.5 million passengers were carried by domestic trunk route carriers in December 2000, with increases of nearly 19 percent on the Melbourne-Sydney route, 48 percent on Brisbane-Sydney and 33 percent on Brisbane-Melbourne.

Aviation analyst Peter Harbison, managing director of the Centre for Asia/Pacific Aviation, said this strong growth in domestic passenger movements was "a reflection of the fact that there are new carriers in the market." Harbison said traditional domestic carriers had benefited from the generation of new traffic and had been able to increase their load factors selectively.

"I can assure you that we will protect our position by using pricing and inventory management, including continuing to offer a variety of discount fares," said Qantas chairman Margaret Jackson.

Impulse Airlines started to upset the traditional Australian aviation apple cart in June, with its Sydney-Melbourne service. "Our existing schedule will see domestic aircraft movements into and out of Sydney increase by 12 percent on an annual basis," said Impulse executive chairman Gerry McGowan. "And the number of flights on the Sydney-Melbourne and Sydney-Brisbane sectors will grow by 20 percent to 25 percent."

Impulse also has signed a marketing agreement with Budget Asia/Pacific that links the car rental booking Web site to its own. Budget vice president Philip Fennell said Budget had experienced significant increases in business since the arrival of low-fare carriers, so the agreement was a natural progression.

Virgin Blue, which started its Brisbane-Adelaide route in December, initiated Brisbane-Sydney service in August and soon after began flying Brisbane-Melbourne. The carrier plans to expand to other ports and, commercial manager David Huttner said, establishing in New Zealand is not out of the question.