High fares hitting domestic air travel

17:00, Aug 31 2014

Rising domestic airfares are turning New Zealanders off air travel and impacting on economic growth, an economist says.

After Air New Zealand last week posted a $262 million profit for the year to June 30, Prime Minister John Key said the majority state-owned airline needed to keep working to reduce regional airfares.

Air New Zealand chief executive Christopher Luxon said its average regional fares had not changed significantly in the last six years.

But he said the company's strong financial performance would help put downward pressure on airfares and last minute airfares could come under review.

Air New Zealand said its average regional airfare had slightly decreased in the past five years.

But Infometrics economist Benje Patterson said Statistics New Zealand figures showed domestic airfares increased 9.1 per cent in the year to June while total domestic passenger numbers rose by just 0.8 per cent.


That compares to an average total domestic passenger growth rate of 4.7 per cent for the three years prior.

"The key reason for the slower growth in total domestic passenger numbers over the past year is likely to have been a sharp lift in flight prices," Patterson said.

Patterson said the disparity between Statistics New Zealand's and Air New Zealand's figures may be due to Air New Zealand changing the number of airfares it offered at different price points.

If an airline offered fewer cheap fares the average price of fares increased, even though airfares themselves had not risen.

Patterson said Jetstar and Air New Zealand airfares had become less competitive in recent years.

"That's constrained the number of people willing to fly domestically even though economic conditions have improved."

Air New Zealand and Jetstar are the two main domestic airlines with Air New Zealand holding a more than 80 per cent market share and a near monopoly on regional routes.

Jetstar experienced a 7.7 per cent decrease in domestic passenger numbers last year while load factor, which measures how full flights are, was down 1.5 per cent to 79.3 per cent, according figures released by Australian parent airline Qantas last week as part of its financial results.

Jetstar's domestic market share was also down 1.7 percentage points to 20.7 per cent.

As a result Air New Zealand's market power had increased, Patterson said.

"It certainly means the prospect of big (fare) reductions to domestic flights are not on the horizon," he said.

Employers and Manufacturers Association chief executive Kim Campbell said some of his members were choosing not to fly because airfares were too high.

"It's a real disincentive when you've got those tremendous costs."

Statistics New Zealand calculates its domestic air transport price index by searching one-way flights for all fare bands across 17 routes and all airlines each month. 

The Dominion Post