Airfare stoush: What’s driving the war over airline prices?

Consumer NZ has joined airports in calling for more oversight of airfares.

“The lack of transparency around airfares can be a source of mistrust in airlines,” said Consumer NZ’s chief executive Jon Duffy.

“We know
there are lots of factors that go into the make-up of an airfare, but we also know 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.”

NZ Airports Association has today attacked Air New Zealand’s pricing, accusing it of exploiting its 86 per cent share of the domestic market to push up fares. It comes as the association’s biggest member, Auckland Airport, is in a heated battle with airlines over what they say is its use of a monopoly position to increase aeronautical charges to pay for unnecessarily expensive infrastructure.

Airports and airlines have extended battle lines from an argument over prices to pleading for new rules each other must operate under.

NZ Airports says the Government has the tools to take action with the new Civil Aviation Act 2023 providing 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,” said association chief executive Billie Moore.

Airlines are pushing for a commercial arbitrator to rule on airport fees, which Air New Zealand says could increase from $9 for domestic passengers at Auckland Airport (AIAL) to $46 in 2032 to pay for the terminal redevelopment.

The airport says charges are currently 3 to 5 per cent of the cost of an average ticket and price rises to 2027 charges will bring it into line with current charges at other major airports in this region.

Duffy said given the structure of the New Zealand aviation market, New Zealanders often have no option but to grin and bear increasing airfares.

“In many cases, flying is the only option to get around the country quickly. Low levels of competition for domestic flights and the lack of alternative transport options outside aviation increases the ability of the airlines to set prices. We would welcome greater oversight and scrutiny of the industry to protect us from price-gouging.”

The airport association, citing Sabre market intelligence data, says New Zealand has the least competitive domestic aviation market in the world with Air NZ’s 86 per cent of the market ahead of Bolivia where one airline holds 84 per cent followed by Turkey where one airline has 69 per cent.

Stats NZ data this week showed all domestic airfares increased 7.4 per cent between January and February although Air NZ says in the year to February its fares increased only 2 per cent, below the rate of inflation and the cost increases it faces.

The airline has warned its domestic fares will go up in the current six months to meet rising costs (including airport charges) and as its long-haul international operation faces profitability challenges, particularly on United States routes where it faces more competition.

The airline’s general manager domestic, Iain Walker, said the airline was “taking steps” to ensure fares cover the cost of travel so it can continue to fly Kiwis across the country.

The Board of Airline Representatives says any scrutiny of airfares should include the impact of airport costs on demand and seat capacity.

The board’s executive director Cath O’Brien said the lack of seat capacity in the domestic market was due to New Zealand being 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.”

Domestic competitors to Air NZ reduced services (including Jetstar on regional routes) over the years because there are better markets for those aircraft elsewhere.

“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.”

Transport Minister Simeon Brown has been asked for comment on the airports’ plea for greater scrutiny of airlines.

Commerce Minister Andrew Bayley has already said he is concerned about AIAL’s prices and has reminded the Commerce Commission it can have a wider inquiry beyond the current price review.

Grant Bradley has been working at the Herald since 1993. He is the Business Herald’s deputy editor and covers aviation and tourism.