28 Aug 2014

Air NZ not only one flying to regions

1:24 pm on 28 August 2014

A group representing the country's airlines is defending the cost of regional air travel, saying people need to remember Air New Zealand is not the only one flying the routes.

The high cost of Air New Zealand's regional flights was thrust into the spotlight yesterday when the airline announced a 45 percent increase in annual profit, to $262 million.

Watch Air New Zealand passengers talk about the fares

Air New Zealand denies it is price-gouging passengers on regional routes, and Aviation New Zealand's chief executive Samantha Sharif agreed, saying people needed to remember Air New Zealand was not a monopoly.

"We have 40 airlines that air operator certificates, so I think there is actually a lot of domestic competition," she said.

"There are actually a number of niche airlines that have carved out specific routes."

Ms Sharif said she was confident if other airlines see an opportunity to offer lower pricing on a regional route they will start operating in competition with Air New Zealand.

But Commerce Minister Craig Foss backed calls for Air New Zealand to offer cheaper regional flights, saying air services were important to regional New Zealand.

Mr Foss said he agreed Air New Zealand needed to reduce prices for flying to the regions, because air services were important to regional New Zealand.

The Commerce Commission was assessing a recent complaint about regional airline pricing, he said.

The commission said the complaint was being looked at as part of its screening process but it doubts it will meet the threshold for prosecution under the Commerce Act.

It said any decision about whether the airline should be compelled to declare its regional pricing model was up to the Government.

Air New Zealand plane

Photo: PHOTO NZ

No rise for six years

Air New Zealand chief executive Christopher Luxon has rejected any suggestion of excessive profits from regional routes.

He said Air New Zealand had not raised the cost of its regional tickets for the past six years, despite increasing fuel and airport costs.

"The contribution from regional routes has remained unchanged. What really this is a story about is actually we have turned around our international business, where we went from losing $1-2 million every single week for a long period of time, we now have that business turned around and profitable and that's what's really contributing."

Mr Luxon said the airline was trying to make its regional routes more efficient by working with communities to encourage more visitors.

Forsyth Barr private wealth research hear Rob Mercer agreed with the airline's assessment of where its profit is coming from.

He said yesterday's results were the fruits of a plan that had been in place for many years, to upgrade the airline's fleet and make its long-haul flights more economic.

Mr Mercer said he did not think the airline would be making any profit, let alone an excessive one, on its regional routes.

"It's expensive for the customers but it's not necessarily profitable for the airline. And it's not good business to undertake services just for the benefit of a few."

He said serving all the different regions was the biggest challenge the airline faced.

"It's a bit eye-watering in terms of the prices we pay but I guess you've got a choice of driving, and it's not too far."

Fares eye-watering

Airports Association chief executive, Kevin Ward, also described regional fares as eye-watering and said there was no way of knowing whether or not the airline is creaming profits off those routes.

He said the Commerce Commission could, and should, require Air New Zealand to report how it structured regional fares.

Nelson Mayor Rachel Reese said the main problem lay with how much regional fares escalated when booked at the last minute.

"Where the challenge lies is we know that's always the risk - if you leave it to the last minute you're going to pay the price - but I do think the airlines need to reflect on perhaps where the accommodation sector's gone in terms of last-minute purchases. You won't necessarily see the same escalation factor if you're trying to book a hotel room."

Ms Reese said it was timely for Air New Zealand to consider its regional fares in the wake of Mr Key's comments.

Drive versus fly

Figures supplied by the Automobile Association (AA) indicate flying to regional centres is comparable with the costs of driving by car.

An Air New Zealand flight from New Plymouth to Wellington booked with just a few hours warning will cost $259-$299, while the same trip booked three months in advance costs $89-$184.

The cost of petrol and tyre wear for a 1.5-2 litre car over the same distance would be $88, according to the AA's website. But taking fixed costs such as finance and depreciation into account more than doubled the real cost of driving.

On that basis, the trip for the same-sized car, which did an average of 14,000km a year, would cost $228, similar to the upper level of the Air New Zealand fare structure.

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