The real-world cost of sky-high airfares

Sunday, 11 May 2025

Stewart Sowman-Lund is a senior reporter covering politics, pop culture and Auckland issues.

Roeland van den Bergh is a Wellington-based senior business reporter specialising in infrastructure, transport and aviation.

Those affected by the growing cost of air travel say it’s making them think twice about visiting friends and loved ones. But what actually makes up an airfare - and is it really unfair? Stewart Sowman-Lund and Roeland van den Bergh report.

At the end of the busy school term, Auckland teacher Ellen Doughty would really like to get away.

Mandatory time off work is a luxury that not everyone gets, she admits. But she’s worried it’s still not going to be possible to get out of the big smoke and visit a friend in Queenstown.

The problem is one of cost. That sky-high airfares have once again become a national talking point comes as no surprise to Doughty, who has been scouring airline websites trying to find a good deal for the school holidays.

“Any sales that do come up always exclude those dates so you can’t even really keep an eye for any special deals,” she says.

“Even if you wanted to book maybe a week before, it’s way, way cheaper - but obviously we don’t have that option.”

At this stage, it’s going to cost about $300 return in the June break.

“It’s not too bad, but it’s more than you’d want to pay because you’re paying more for accommodation too in the school holidays. It all adds up.

“Everyone wants to travel at those times. But it’s not very fair because that’s when people do have to travel.”

As a teacher, Doughty sees the reality of expensive airfares in the classroom too - pointing to the Government’s crackdown on school attendance. If families can’t afford to travel in the holidays, she says, it’s obvious why they’re choosing to take their children out of a class for a few days during term time.

“If you have a whole family going over [to Australia to visit relatives], then you can save however much by coming back a week later.”

Doughty is one of many questioning the rising cost of travelling around Aotearoa at the moment.

Wellington woman Courtney Binns says she has to spend hundreds of dollars travelling to and from Nelson to visit her long-distance partner.

“I did one night there recently and it cost me $450 just for the flights,” she said. “I could travel somewhere outside New Zealand and spend that much money.”

She’d like to see airlines offer cheaper flights for people wanting to travel at short notice, though acknowledges particular times will have added demand.

“This is becoming a regular thing for me… it is frustrating that the prices fluctuate,” she says.

“I’m OK, I am paying [for] these. But I am on my sole income … I don’t make a lot of money. It is frustrating.”

Aviation economics explained

Since Covid, aviation had bounced back strongly. Demand exceeded supply, and Air New Zealand posted a profit of about $585 million. But that next year that profit more than halved, chief executive Greg Foran told a select committee in February.

The aviation industry is quite cyclical. “You have a year or two, which can be very good, and then you can have four or five years where it isn't good.”

Consumer NZ has urged the airline to fully open its books with investigative writer Vanessa Pratley saying for the average layperson there is no way of knowing what makes up an airfare and how much is profit.

“[It] isn’t like shopping for clothes,” Pratley says.

“When you buy a pair of pants, the cost covers the fabric, the labour and the overheads, plus a profit margin. With airline tickets, it isn't as simple [as] adding the expenses and a profit margin and coming up with a price.

“Costs and revenue are measured per ‘available seat kilometre’, so even though we know, and sometimes can quantify, the expenses, we can’t figure it out by looking at a ticket price.”

A fare typically has to cover a range of expenditure, explains aviation commentator Irene King. Gross profit could be as little as 5% of this.

“Say if you have $1, then typically between 25 and 30% of that dollar is spent on staffing costs. Another … between 10 and 15% is engineering costs. And then 10% is fuel.”

Then, there are airport charges, overheads like power and other small costs on top.

And they’re distributed more thinly on a larger aircraft than those servicing regional routes, King adds.

“With a big aircraft you can spread your costs … across 300 passengers. Most of your costs regionally are fixed … and so you don’t have real capability to spread across passengers.”

What’s in an airfare?

Fundamentally prices are based on the principle of supply and demand. The earlier you book a seat the cheaper it is, House of Travel chief operating officer Bent Thomas says.

Skilled yield managers have the responsibility to ensure that a flight makes a profit and adjust seat prices accordingly. Once the lowest classes have sold out, they move you up to the next class — same seat, same plane, but more expensive, he says.

Where there isn't capacity, those lower priced seats go very quickly, and those who book late will pay a premium, “and it is a significant premium at the moment”.

“If you're selling seats at $89 from Auckland to Christchurch you not going to be making money. But if you can sell that same flight at $359 then you're starting to make some good profits.

So it's by demand, based on history, what is the expectation of selling that flight out.

Pricing all the seats at $359 and selling only half of them is not going to make money either. “So it's a balancing between fully filling the flights and having the right pricing to make that economical,” Thomas says.

A flight needs to be at least 80% full to make a profit.

“If there is a lack of demand, prices are reduced to encourage bookings. “We see specials being dropped into the marketplace all the time . . . to fill those seats on reasonably short notice,” Thomas says.

Greg Foran and the $13 profit

Foran told a select committee in February that the airline was losing about $50 a seat flying from Invercargill to Wellington - a route it has since cut.

Those losses had to be made up with profits on another route in the network.

Passengers had told him that they considered $75 to be a good price for a flight between Auckland and Wellington - the cheapest Air New Zealand fare on the route is $89 - but using the $75 example, Foran said taking GST off reduced the income to about $65. Of that, $51 was paid to the Civil Aviation Authority, Avsec and Auckland and Wellington airports for various fees leaving a profit for the airline of about $13.

Airlines generally are not a high profit business and most countries have just a few large airlines, he said.

Australia has a population of 27 million served by two main airlines, Qantas, which also owns Jetstar, and Virgin Australia. Budget start-up Bonza failed last year after just 15 months. Established regional operator Rex earlier this year received a A$50 million (NZ$54m) bailout from the Federal Government after a disastrous foray into capital city jet services.

The United States with a population of 370 million people was serviced by just four major airlines.

“How many airlines realistically make sense in a country of 5.3 million people? One”, Foran said.

“Now, some people would say, well, hang on a minute. You guys got so much here domestically that you're controlling the pricing. And I can understand people making that comment. And have prices gone up since 2019? Yep, they've gone up about 24% and during that period, inflation has gone up 22%,” he said.

That often leads to a misconception that flying a smaller distance on a smaller aircraft should mean a smaller price. Over Easter a Tauranga man complained to the Commerce Commission, claiming it would cost more to travel domestically than to Los Angeles.

Andrew Crawford, the managing director of regional airline SoundsAir, says these comparisons are unhelpful.

“People go, ‘well I could fly to LA for 700 bucks’ - but that's a 350 seat aircraft. The cost can be spread. Trying to compare that to a nine seat craft, which is us… it’s just no comparison. You can't do that. It's chalk and cheese.

“If we did a pie graph of where everything comes from: a big chunk’s fuel [and] maintenance… there’s two items, and you’ve lost 50% of your money.”

The role of regional airlines

Are regional airlines the solution to the airline price war? The trouble is, they’re small operations. While Jetstar competes with Air New Zealand on several main trunk routes, most regional airports are serviced just by the national carrier.

SoundsAir is one of a handful of smaller players, but it only flies between a select number of airports and with tiny planes.

“We would like to do more expansion, but at the moment, it's very, very difficult,” says Crawford.

It’s just removed two routes, and sold an aircraft.

“[Regional airline owners] are mortgaging their houses to keep regional aviation going. It's ridiculous.”

Crawford says he doesn’t believe Air New Zealand is intentionally ripping off travellers and has some sympathy for it. Times are tough across the board, he says.

“I don’t think the consumer understands what it costs to run an aeroplane. Since Covid, the absolute gross profiteering that has gone on from suppliers - which are monopolies … we have no choice, and Air New Zealand is the same. It’s brutal,” he says.

“I hate some of the fares we’re charging… I don't think I'd pay it myself. But there is no choice. And in fact, dare I say, they should be 50% more. .”

Crawford is due to meet with Associate Transport Minister James Meagher, though he’s not holding out hope for immediate change.

‘It’s crazy’

The coalition Government has thus far been reluctant to act, though it maintains it is watching.

Finance and Economic Growth Minister Nicola Willis said she would be meeting with Air New Zealand this week and was open to initiating a market study - something the Commerce Commission has claimed might not work. The Government has a 51% shareholding in Air New Zealand.

National MP Suze Redmayne, who represents the expansive central North Island electorate of Rangitīkei, says that travel costs are frequently raised with her.

“For regional New Zealand, it’s really important because we already face high transport costs and restricted travel schedules,” she says.

“People that are travelling for business, they’re not so restricted by the price - if they have to go they’ll go anyway. But when you’re a mum and dad and you have to get somewhere in a hurry, it’s a real issue.”

Te Pāti Māori co-leader Debbie Ngarewa-Packer agrees.

Like Redmayne, Ngarewa-Packer represents a large and predominantly rural electorate. Te Tai Hauāuru takes in much of the West Coast of the North Island.

“It seems crazy that we're making it so difficult to be able to take the family … down south for a weekend skiing or to come up to Taranaki and do the beaches.

“[For] my son's 21st it was cheaper for me to send him over to Australia [with] his girlfriend than it was to send him down to the South Island.”

Crawford from SoundsAir says it’s not about profiteering - and that goes for Air New Zealand as well. But, he adds, profit has become “an absolutely forbidden word”.

“You are allowed to make profit, and we should be absolutely rejoicing when businesses do,” he says.

“We employ 85 staff as a business. We're a big employer in this town. And I tell you, businesses just get treated like dirt.”

‘It’s essential’

While Air New Zealand denies using dynamic pricing, forcing costs up at peak times, Consumer NZ said it obviously does.

“In practice, the first tickets available are generally cheaper. As time goes on and tickets are sold, prices jump up. Our research has found that Air New Zealand’s dynamic pricing can increase the cost of a single ticket by almost four times as much,” says Vanessa Pratley.

Teacher Ellen Doughty acknowledges that businesses - airlines included - are doing it tough, but thinks consumers are being forced to bear the brunt. She’d like to see more standardised pricing to help people travel at peak times.

“It’s just about transparency,” she says. “We don’t have trains, we don’t really have a good bus system and it’s too far to travel if you can’t fly. We don’t really have another option.”

But the head of national bus service Intercity says the high cost of travelling by air has encouraged people to seek out alternatives, including public transport.

“It’s always been the case that airfares have been more expensive than a bus trip. What we’ve seen lately is that there has been an increase in inquiries and patronage on our services,” Sam Peate, chief operating officer, says.

“I think people are starting to realise that when you take into account the time it takes to get to the airport, to check in, and then when you arrive at the other end to get your bags … the actual duration of that bus ride from the city centre to another city centre is about the same.”

It also doesn’t have surge pricing, and caps on the rate the highest fare can go to, even in peak times.

But for those wanting to travel further afield, like Doughty, coughing up for a flight remains the only option. “It’s essential to see family or friends. We’re just going to have to pay the premium because I think that’s the only way we can do it.”

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