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Virgin Blue to Scrap New Zealand Domestic Services; Air N.Z. Shares Jump

Virgin Blue Holdings Ltd., Australia’s second-largest airline, will scrap New Zealand domestic services as Chief Executive Officer John Borghetti overhauls operations to focus on more profitable routes.

The fleet, carrying the Pacific Blue brand, will be redeployed on routes across the Tasman Sea and to Southeast Asia and Pacific Islands such as Fiji, Brisbane-based Virgin Blue said in a statement today. Planes currently serving those markets will in turn be used to boost long-haul V Australia services, including flights to Los Angeles and Johannesburg.

The changes, which take effect from October, are Borghetti’s first steps in re-shaping Virgin Blue’s network after rising competition in Australia from Qantas Airways Ltd.’s Jetstar unit and Tiger Airways Holdings Ltd. forced the carrier to slash its profit forecast. Air New Zealand Ltd. jumped the most in almost three weeks following the withdrawal, which will pare competition in the country of 4.3 million people.

“We are adding capacity to routes with strong revenue potential and accordingly, removing capacity from services which are underperforming,” Borghetti said. “These changes will maximize yields, increase aircraft utilization and also provide a more attractive schedule for the business market.”

Air N.Z. Cooperation

Borghetti has also agreed to cooperate with Air New Zealand on Tasman Sea routes, pending regulatory approval. The former Qantas executive halved Virgin Blue’s forecast for profit before tax and items to less than A$40 million ($36 million) in May. He became the carrier’s CEO the same month.

Virgin Blue fell 1 cent, or 3.3 percent, to 29 Australian cents as of the 4:10 p.m. market close in Sydney, its biggest percentage decline since June 2. The stock has tumbled 51 percent this year compared with an 8.9 percent decline for the benchmark S&P/ASX 200 index. Air New Zealand jumped 1.8 percent to NZ$1.16 in Wellington.

Virgin Blue’s exit will leave most of the nation’s market to Auckland-based Air New Zealand and Qantas’s Jetstar.

Jetstar said it will add a seventh and eighth Airbus A320 aircraft on its New Zealand routes within the next 12 months, while Air New Zealand said in a separate e-mailed statement travelers with bookings on the scrapped Virgin flights will be offered seats on its services.

To contact the reporter on this story: Robert Fenner in Melbourne at rfenner@bloomberg.net

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