20 May 2013

Airlines warn ticket prices will rise with increased levies

3:21 pm on 20 May 2013

A group representing major airlines says passengers will end up paying for a rise in air traffic charges.

After a six-month consultation period, Airways New Zealand, the state-owned enterprise that operates air traffic control at airports, has announced it is raising its levies.

The fees will rise by more than 10% this year and will increase by a total of 15% by 2015 - an extra $70 million over three years.

The Board of Airline Representatives, a lobby group that includes Air New Zealand, Emirates, and Qantas, says that's too much for its members to absorb.

Executive director John Beckett says airlines will have no choice but to pass on the costs to passengers.

"The airlines themselves have very thin margins, and just have no capacity to absorb cost increases for long, without it coming through in air fares."

Mr Beckett says tourists are less likely to come to New Zealand as costs rise, and ultimately some airlines may reduce services or, at worst, withdraw from the market.

Airways New Zealand says most of the extra charge will pay for new technology that will save airlines about the same amount in fuel and carbon emission costs.

Chief financial officer Mark Lovard says airlines and passengers are already benefiting from some of those savings.

He says that in Queenstown, for example, new technology allows planes to fly in when visibility conditions are poor, saving fuel burn and avoiding 200 flight diversions to Invercargill in the past two years.

Mr Lovard told Radio New Zealand's Morning Report programme that prices across the board, including recreational flights, will face only a slight increase.

Airways originally proposed a 23% hike over three years, but airlines negotiated a lower increase.

Mr Beckett is critical of the level of profit Airways builds in, saying the return on capital of 7.8% is higher than it should be.

Airways New Zealand says its return on capital has been deemed appropriate by the Commerce Commission and says it has been found to be the fourth most cost effective air traffic control operation in the world.

'Monopoly position'

Mr Beckett says both Airways and individual airports can charge as they see fit as they are in a monopoly position. he is calling for the Commerce Act and Airport Authority Act to be amended.

"This legislation is out of line with the way in which airport prices are set in the rest of the world."

In February, the Commerce Commission released a report saying Wellington Airport was earning millions of dollars more than was reasonable.

Wellington Airport is disputing the Commerce Commission's report and will challenge the economic model used in the High Court.