Cheaper air fares could be on the way as Air New Zealand looks at setting up a budget airline to operate on the main trunk routes.
The revelation comes after a new airline called Kiwijet revealed it is planning to enter the domestic market later this year with a low-cost business aimed at tourists.
Business has never been better for Air New Zealand with profits boosted by increased passenger numbers as the public lap up new aircraft and cheaper fares.
A one-way offer for $49 domestic flights was quickly snapped up on Friday and Air NZ now says it's looking at starting a new low-cost airline within the country.
The news came in a staff memo from top management at New Zealand's national carrier which says "we are considering...a low-cost carrier operating alongside Air New Zealand in New Zealand". It goes on to say that "many of the services proposed by Kiwijet bear a surprising similarity to opportunities we have been exploring".
Goldman Sachs JB Were analyst Marcus Curley says that given the likely threat of a new entrant, Air New Zealand is best to serve up the low price offering themselves and effectively limit the financial impact.
And the national carrier has launched an investigation into whether confidential information was leaked to Kiwijet's American founder Patrick Weil.
"No industrial espionage at this point, it would be rather difficult to do from Miami Beach," says Weil.
Kiwijet says it's looking to fly the main trunk route between Auckland, Christchurch, Dunedin and Invercargill - starting later this year. It plans to target people like backpackers and give Air New Zealand some much needed competition by offering a flat rate fare which can be bought from petrol stations.
"We're not trying to start a war or a fight with them," says Weil.
"We certainly don't want to antagonise. I think that there's room for two."
But analysts say any new airline will struggle against a
formidable rival like Air New Zealand.
Aviation expert Peter Clark doubts a third airline will ever make it in New Zealand and says Air New Zealand has nothing to fear as it has a good grasp on the local market. He suggests the national carrier should still continue ahead with its plans.
Weil says he has got serious financial backing for Kiwijet but admits that he is also a bankrupt after falling on hard times after the September 11, 2001 attacks.
"It's a personal bankruptcy, it has nothing to do with business endeavours," he says.
Meanwhile Air New Zealand has told staff that confidential company information has to remain secure if it's going to stay one step ahead of the competition.