Brace for impact: Why Air NZ market study might not fly

Sunday, 27 April 2025

Andrea Vance is National Affairs Editor for The Post and Sunday Star-Times.

OPINION: Supermarkets, banks, construction, fuel prices… now do Air NZ.

Sky-high fares over the Easter holidays have seen demand take off for government intervention in local aviation, which is dominated by the national carrier.

Cripplingly expensive domestic tickets last week led ‘angry dad’ Scott Koster to file a complaint with the Commerce Commission after discovering it was cheaper to fly to Los Angeles than pay for his student daughter to return from Tauranga to Wellington.

Recent investigations by watchdog Consumer NZ revealed Air NZ flights across the Tasman in the school holiday period increased by 43%, almost twice the rate of Aussie rival Qantas. And that ‘dynamic pricing’ in the domestic market could quadruple the price of a ticket from Auckland to Dunedin.

In Southland and Otago, travellers say they have been cut off from the rest of the country by reduced routes and service, uncertainty and extortionate prices.

That’s led Minister for the South Island James Meager to claim regional flight reliability and connectivity is his “top priority”.

“We are considering what steps and investments we can further take to improve regional air connectivity, including regulatory changes,” he told the Otago Daily Times on Wednesday.

But that is unlikely to include an investigation by the Commerce Commission.

While the watchdog has lately held inquiries into fuel, building supplies, banking and grocery sectors, then commerce minister Andrew Bayly was lukewarm on calls for a market study late last year.

The Government hasn’t explicitly stated reasons against a market study, although its 51% ownership is likely to be a factor.

One argument is that the high ticket prices are largely understood, and come as a result of the airline passing its rising costs onto passengers. Travel is spendy everywhere, right now.

Fuel is a major expense for airlines. Last year, outgoing CEO Greg Foran explained that a US$1 increase in the price of a barrel of oil adds approximately $12 million to annual costs. That said, oil prices have dropped recently.

A fluctuating fuel market comes on top of inflation in other operation expenses, like wages, maintenance and supplier services. Since the pandemic, those have risen by as much as 25%.

Engine maintenance issues have severely reduced capacity on the airline’s Airbus A320neo aircraft and Boeing 787 Dreamliners, and US tariffs have added uncertainty.

Post-Covid travel demand has recovered, but airline capacity has not, and the prolonged recession will only dampen demand for business and leisure trips.

Significant infrastructure investments, like Auckland Airport's $6 billion terminal upgrade, will also further hike costs.​

The pressure on profitability is obvious.

Air NZ’s shareholders aren’t getting rich off the back of impoverished travellers: earlier this month it said its full year underlying profit will be down as much as a third on last year. (It’s underlying profit also dived last year.)

There might be logic behind the price rises, and a market study won’t change the reality that competition is naturally limited in a small market.

But Air NZ doesn’t have a normal, transactional relationship with the public.

To borrow a phrase from cut-price airline pioneer Michael O’Leary, it’s more than just a “bloody bus with wings”.

The company has an 86% monopoly on domestic routes. It operates critical transport infrastructure in a country where the geography (and distance from export markets) is challenging and there are mostly no viable public transport alternatives.

As well as that, the Government owns 51% and has bailed out the airline twice in 20 years, with rescue packages totalling billions.

In a sense, the taxpayer feels ownership, and owed.

There’s also a uniquely Kiwi affection for a flag carrier that brings people home from an OE or welcomes tourists. Air NZ cleverly exploits this in its marketing.

But that social licence - which allows Air NZ to get away with a lot - is fraying.

A Horizon Research survey from last year saw consumers rank the domestic airfare market the country’s least competitive, even trailing supermarkets, banks and fuel companies.

There is a lingering suspicion that Air NZ is exploiting its market dominance to push up prices. Customers also hate its dynamic pricing algorithms.

These programmes, which tweak prices to reflect demand, have been around for decades. But with more travellers booking their own trips online, it becomes more obvious when they shop around for a bargain, or dither over a decision.

Passengers also bristle at the patronising advice dished out in response to criticism: book early to secure the best deals. No-one plans in advance for a funeral.

Consumer NZ has argued that these pricing structures are predatory, and take advantage of those who need to travel in an emergency and will pay through the nose. Price-gouging by another name.

The watchdog has been calling for a market study because it believes passengers are in the dark about the use of dynamic pricing and how costs are impacting competition. Also among its demands is a breakdown of costs when travellers buy a ticket.

Because the Government has turned its stern gaze on other sectors over unfair pricing and poor performance, it’s difficult to argue that aviation shouldn’t be subject to the same scrutiny.

With or without an investigation, restoring trust should be a priority for the incoming CEO.

Names in the frame are ex-operating officer, now Auckland Airport CEO Carrie Hurihanganui, Qantas International boss Cam Wallace and Ports of Auckland boss Roger Gray.

Brace for impact. With a grumpy customer base, it’s likely to be a bumpy landing into the new role.

What do you think? Email sundayletters@stuff.co.nz. Please include your full name and address.