Air New Zealand ditches Virgin Australia to grab bigger share of Tasman

Air New Zealand is cutting all of its ties with Virgin Australia by ending their alliance on transtasman routes.

This follows Air New Zealand’s decision in March 2016 to quit its 26% shareholding in Virgin Australia and resign from the board.

Since then, the two airlines have wound back some areas of cooperation, such as sharing frequent flyer benefits.

The airlines’ partnership is due to expire on October 27 and Air New Zealand has given Virgin Australia notice that it doesn’t want to renew it.

Air New Zealand chief revenue officer Cam Wallace says in a statement that the market dynamics on the Tasman had changed, adding that the time was right for each airline to “focus on its own objectives.”

The revenue-sharing joint-venture was established seven years ago and also provided reciprocal frequent flyer benefits such as shared lounges and codeshare ticketing.

The changing market dynamics is a reference to Emirates withdrawing from all but one transtasman service – Christchurch-Sydney – and allowing its partners Qantas and Jetstar to fill the gap.

In 2013, the groupings of Air New Zealand-Virgin Australia and Qantas-Jetstar-Emirates held equal shares of transtasman routes, not counting a few other international operators that also fly over the Tasman.

Of its 50%, Air New Zealand had some 35% and Virgin Australia about 15%.

Air New Zealand is aiming to boost its market share, with Mr Wallace noting Australia is the largest source of inbound visitors to New Zealand.

“This move will enable us to deliver a more consistent customer experience by using our own fleet and delivering an improved schedule, which we’ll provide more details about shortly,” he says.

“We remain fully committed to our other alliance relationships and our overall global airline alliance strategy as a critical success factor in other markets.”

Monitored market
The transtasman market has about seven million passenger trips a year with 50,000 flights and is monitored by competition authorities to ensure airlines maintain a minimum capacity to prevent fare gouging.

When renewing the Qantas-Emirates partnership for another five years, Australian Competition and Consumer Commission made a condition that capacity on the Sydney-Christchurch be maintained with extra Qantas services.

In fact, most airlines have gradually expanded their transtasman routes in recent years, including into destinations such as Queenstown and Adelaide.  

For its part, Virgin Australia – now largely owned by Singapore Airlines, Etihad and a Chinese airline – is now focused on expanding its international network into Asia. This includes new routes to Hong Kong from Melbourne and Sydney.

In a statement, chief executive John Borghetti says Virgin Australia will remain commited to both the business and leisure markets.

"Virgin Australia will continue its strong focus on providing competition and outstanding service on the Tasman, which remains an important part of our network and strategy as an airline group," he says.

The airline also has a budget subsidiary, Tigerair, on domestic routes in Australia that competes with Jetstar for that segment of the market.

Tigerair, once owned by Singapore Airlines, has a fleet of Boeing 737s that could be put on transtasman routes while Virgin Australia targets business travellers.

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