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Analysts say Air NZ's fare cut could be risky where its second-half profit fell 76% on fuel prices.
Despite the slowing economy, airlines are set to fight a price war over the competitive Sydney-Auckland route.
Air New Zealand has announced plans to cut its one-way fares from Sydney to Auckland by almost 25 per cent this month. This move will be followed by Virgin Blue’s subsidiary Pacific Blue, which will increase its services on the trans-Tasman route by seven per cent in September.
The route is already crowded with five operating airlines, including Qantas, Emirates and LAN.
While the operating environment for the airlines is becoming increasingly challenging, analysts say Air NZ’s plan to slash fares is a risky move as there is no guarantee that an increase in traffic could offset the fare cut amid an economic downturn.
One of the main factors that would affect the results of the Air NZ’s move is Qantas’ response.
“Whether it is big or small will depend on how hard Qantas comes back to respond to Air NZ’s pricing moves,” an industry source told The Age.
However, industry insiders are sceptical about the possibility of a significant boost in trans-Tasman capacity and say the airlines need to seek practical solutions to increase their market share.
“Virgin Blue’s decision is likely to be seen as a better financial option than purely parking the planes, while the additional capacity on the Sydney-Auckland route will place downward pressure on yields for both Qantas and Air NZ,” Macquarie analysts told The Age.
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