Airports call for monitoring of record high domestic airfares
Thursday, 14 March 2024
Domestic airfares increased by 7.4% from Jan to Feb 2024.
NZ Airports Association wants airline performance and domestic airfares to be monitored.
**A monitoring system *of domestic airlines* exists in Australia.**
New Zealand airports are calling for domestic airfares and airline performance to be monitored to provide greater transparency for consumers, amid record-high domestic fares.
Data released by Stats NZ on Wednesday showed domestic airfares went up 7.4% in February compared to January 2024.
Year-on-year domestic fares increased from February 2023 is 7.7%.
NZ Airports Association (NZAA) chief executive Billie Moore said Air New Zealand had upped its domestic airfares yet again and increased the cost of add-ons such as bag check by $10.
“It’s flagged that other costs, like checking in your pet, could also be in for a future price hike,” Moore said.
“This is incredibly difficult for domestic and regional travellers. They’re already frustrated about how much they’re having to pay to fly, as well as high cancellation rates for Air New Zealand in some regions.”
According to data from Infare, Air New Zealand hiked its average domestic network airfares by $51 to $200 per one-way airfare for the year ending September 2023, a 34% rise on the previous year.
But some passengers will be forced to pay more than this, Moore said.
A return airfare from Tauranga to Nelson this weekend, March 16 and 17, leaving at 7.05am and flying back at 5.50pm, was $1160 with a checked bag.
Air New Zealand general manager domestic Iain Walker said its February domestic fares were up 2% year on year, which was below inflation and the increase in operating costs.
“That’s why we’re taking steps to ensure our fares cover the cost of travel so we can continue to fly Kiwis across the country.
“It’s also why we – and our competitor airlines – are so concerned about the Auckland Airport redevelopment, which will see charges increase from $9 per domestic passenger today to $46 in 2032.”
Moore said the airline is blaming Auckland Airport for its cost increases “when it’s their own record-high domestic airfares and cost add-ons that are driving up the cost of domestic travel for consumers. Airport charges only make up a fraction of a ticket.”
“With 86% of market share, our domestic monopoly airline essentially dictates the price, routes and flight schedule available to regional New Zealanders. Things are likely to get even harder with Air New Zealand’s aircraft shortage and engine maintenance issues.”
In August, Air New Zealand CEO Greg Foran said the business was dealing with rising costs across many areas, from spare parts and new aircraft to dry cleaning and airport charges – all of which contributed to higher airfares.
“We’re not going to go back to 2019 levels – I want to be clear about that,” he said.
Moore said New Zealand had the least competitive domestic aviation market in the world with Air New Zealand controlling 86% of the market.
Citing data from Sabre market intelligence, Moore said the second least competitive country is Bolivia where one airline holds 84%, followed by Turkey where one airline holds 69% of the market, followed by Argentina and Nepal with one airline in each country holding a 67% share.
But Board of Airline Representatives executive director Cath O’Brien said New Zealand was probably one of the most expansive ‘open skies’ environments she knew of.
“The New Zealand government has for many years offered open air services arrangements with other states,” she said.
Open skies air services agreements encourage competition, O’Brien said.
“For example, the government policy settings between New Zealand and Australia allow for any Australian airline to operate here domestically without limitation.”
O’Brien said airlines do not want to see higher fares, but these are an unfortunate consequence of constrained supply of seats and high operating costs (including airport charges) in the New Zealand market.
“What we see in New Zealand domestically at the moment is a lack of seat capacity. This comes about because New Zealand is a small market with expensive and rising operating costs. Fewer seats lead to higher prices, higher costs lead to fewer people travelling, which leads to fewer seats…. it can become a downward spiral.
“We’ve seen domestic competitors to New Zealand reduce services over the years – this is because there are better markets for those aircraft elsewhere.”
O’Brien added with Auckland Airport (AIAL) prices as currently set; and these costs impact demand for travel, ticket prices could rise further.
“Domestic airlines cannot afford the extremely expensive airport AIAL is setting out to build. Costs imposed by Auckland Airport will push up the price of travel permanently for Kiwis and this will be felt most by domestic and Tasman travellers – the flights we take most often.”
”If NZAA and its members are concerned about higher pricing for domestic airfares, we suggest AIAL considers reducing prices for what is one of the largest costs to domestic and Tasman operators beyond fuel – airport infrastructure.”
O’Brien said BARNZ welcomed an examination of airport costs and the impact of these costs on demand and seat capacity.
“Airlines have asked the Commerce Commission to include this assessment in its current review of AIAL’s steeply rising prices.”
In Australia, its Competition and Consumer Commission monitors the prices, costs and profits of the four major domestic airlines to “ uncover behaviour in the industry that may damage competition” and “ identify signs that competition in the industry is not effective.”
The Commission regards its airline market as highly concentrated, with the Qantas Group holding 61% of the domestic market.
“Australia’s Competition Taskforce has found that fares reduce by 29% when a second airline is on a route,” Moore said.
“Prices reduce by a further 31% if there is a third airline operating. Consumers pay less than half of the monopoly price on a given route if three airlines are competing against one another.
“In New Zealand there has been no policy effort to create the conditions for greater market competition in air passenger transport. And unlike in Australia and other developed countries, there is no transparent airfare and market performance monitoring in New Zealand to support consumers paying a fair price. This kind of transparency is essential in monopoly conditions.
“The Government has the tools to take action. The legislative work is already done - the new Civil Aviation Act 2023 provides the Ministry of Transport with the information-gathering power to set up an independent airfare monitoring process.
“Let’s start now to ensure we have appropriate scrutiny on airline performance and pricing and consumers can see for themselves if they are getting a fair deal, now and in the future.”
Consumer New Zealand chief executive Jon Duffy told Stuff Travel the low levels of competition for domestic flights and the lack of alternative transport options outside aviation makes it easier for the airlines to set prices.
“We know that the lack of transparency around air fares can be a source of mistrust in airlines. Although many factors contribute to the make-up of an airfare, there is constrained supply (limited flights) and monopolies on some routes – these are red flags that could signal a need to look more closely at pricing to ensure we are not being price gouged.
“We think that the recent review of the CAA [Civil Aviation Authority] was a missed opportunity to provide better protections for people when their flights are disrupted. We are poorly served when compared with citizens of other countries. Over 11,000 New Zealanders have signed our petition calling for better flight rights for New Zealanders. So far, those calls have fallen on deaf ears, but we will continue to make our views known to the Government.
“We would welcome greater oversight and scrutiny of the industry to protect us from price gouging.”