Air New Zealand Price Disparity

Published HBT Oct 6

Apparently the Prime Minister agrees there is evidence that Air New Zealand are charging provincial  air travellers more than would be possible if there was competition. This includes Hawke’s Bay.

Typically airfares between Auckland and Wellington (500Km) are less expensive, and the cheaper fares are more readily available than Auckland to Hawke’s Bay(327Km), despite the greater distance. If Jetstar fares are included the gap increases. Air New Zealand may argue economies of scale reduces costs, but their flights between Auckland and Dunedin, or Auckland and Queenstown, have similar passenger numbers to the 275 000 a year travelling between Auckland and Hawke’s Bay, yet generally cost about the same, despite the South Island flights being over 1000Km, three times further than Hawke’s Bay. Again including Jetstar flights increases the difference.  

  

Upgrading to jets would improve the quality of the services and increase the numbers of seats available. Air New Zealand cannot claim Auckland to Hawke’s Bay (327 Km) is not far enough for jet services because they already operate jets from Wellington to Christchurch (300Km), Christchurch to Queenstown (347Km), and Christchurch to Dunedin (316Km)   

Claims by Air New Zealand that regional fares have not increased in five years and that the number of sub $100 regional seats have increased from 600 000 to 1 million a year over that time, must be challenged. They never disclose how many of these are to Hawke’s Bay. Nor do they tell us how many of these cheap fares are replacements for the abandoned  stand-by, or frequent flyer discount programs, or explain how official data from Statistics New Zealand shows domestic airfares have increased by a massive 9.1% for the year to June. 

The “Grab a Seat” programme is also farcical. They are hard to obtain, need to be booked weeks in advance, and are not suitable for the average traveller, especially those connecting with international or other domestic services.  

Air New Zealand are determined to make things very difficult for competitors and over the years have dispatched Kiwi Air, Ansett, Qantas New Zealand, Trans Air, Origin Pacific, and Pacific Blue. In no other area of commerce is a dominant supplier allowed so much unfettered and unrestrained freedom. Telecommunications and electricity sectors have been broken up to create competition and others have been penalised by the Commerce Commission for abusing their dominant position.  

It would help if the Commerce Commission investigated  Air New Zealand’s costs and profitability, and their real time micro managing of fares to ensure they are not being unfairly used to stifle competition. Non competitive routes should not be allowed to cross subsidise competitive routes. 

Local Government is part of the problem. Whilst our councils lost interest in trans-Tasman flights when a $10 million airport upgrade and $4 million a year operating subsidy was mentioned, more than this is being squandered by the same people on projects that fail to deliver any meaningful economic benefit. The new Museum in Napier cost $18 million to build, apparently needs a $4 million annual operating subsidy, while attracting fewer than 40 000 visitors annually, a fraction the number already passing though the airport. The now abandoned Art Deco buses cost over  $1 million and lost nearly $0.5million during their short time on the roads.

In Hastings the Opera House had a $15 million upgrade including road works, incurred a similar amount in interest charges and operating subsidies, and now requires millions more for earthquake strengthening. Hastings also plans to spend some $8 million on the Civic Square project. 

Providing  domestic competition will cost a fraction of these amounts but could make a huge difference to our economic performance. If we continue doing nothing we will cement our position as the bottom ranked regional economy in the country.