Air New Zealand hiked its average domestic network airfares by $51 to $200 per one-way airfare for the year ending September 2023. Photo: 123RF
Correction: The statement that New Zealand's airline market was one of the least competitive globally was originally incorrectly attributed, the headline has also been corrected. The statement that lack of government action to boost competition is leading to high fares for customers was also incorrectly attributed and has been corrected.
Airport representatives say lack of government action to boost competition is leading to high fares for customers.
Data from Stats NZ shows domestic airfares rose by 7.4 percent in February, adding pressure to the already high cost of living for New Zealanders.
The New Zealand Airports Association (NZAA) claimed New Zealand was one of the least competitive airline markets, and there had been no government policy work to correct it.
However, Board of Airline Representatives (BARNZ) executive director Cath O'Brien, said the country was probably one of the most expansive ‘open skies’ environments she knew.
"The New Zealand government has for many years offered open air services arrangements with other states.
"Open skies air services agreements encourage competition. 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 did not want to see higher fares, but these were an unfortunate consequence of a constrained supply of seats and high operating costs 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."
Domestic competitors to New Zealand reduced services over the years because there were better markets for those aircraft elsewhere, she said.
NZ Airports Association
The NZ Airports Association (NZAA) is calling for the introduction of domestic airfare and airline performance monitoring, to provide greater transparency for consumers, amid record high domestic airfares.
Chief executive Billie Moore said Air New Zealand had upped its domestic airfares yet again, as well as increasing the cost of add-ons such as bag check by $10.
"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."
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 percent rise on the previous year. But some passengers would be forced to pay more than this, Moore said.
"For example, a return airfare from Tauranga to Nelson this weekend can cost as much as $1160 if you want to check a bag.
"Air New Zealand is busy blaming Auckland Airport for 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 made up a fraction of a ticket, she told Checkpoint on Thursday.
"They are generally about 5 percent of an airfare. They're low, they're static over five years and they are transparent, because the sector is regulated and has information disclosure processes. What's not transparent to consumers is the airfare side, and the final prices they pay with that dynamic pricing, day to day, hour to hour.
"And so we feel that a bit of a light on that would really help the situation, considering Air New Zealand has 86 percent of the market and consumers really have no choice of who to use."
She said prices were likely to keep rising "with Air New Zealand's aircraft shortage and engine maintenance issues".
There had been no policy effort to create the conditions for greater market competition in air passenger transport in the country, Moore said.
"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.
Moore said an independent monitor could be set up by the Ministry of Transport under last year's Civil Aviation Act 2023.
"Publishing this kind of data does have a bit of a chilling effect on airlines - we see it in Australia as well, where people can see this kind of information and track it from an independent source. So we get out of this kind of tit for tat, who's got the right numbers discussion, which… is frustrating for people to hear. So there is potentially some benefit there.
"There's also potentially some benefit for existing smaller airlines and new market entrants to see the health of the market where opportunities might be.
"But look, I'm not going to pretend that this would result in competition quickly. I think it's one step we'd love the government to take so that they can start learning the dynamics of what we're dealing with, and understand that our market is in poor health - we shouldn't be satisfied with this.
"And then consider, are there any policy interventions that could help improve it for the future? Because with Air New Zealand's fleet pressures and other cost pressures, it's not looking great for regional travellers."
A market study, like that carried out into supermarkets recently, could also be undertaken by the Commerce Commission, Moore added.
"In the meantime, the data would go a long way to at least getting us a base to work from."
BARNZ had been vocal about its discontentment with the $3.9 billion redevelopment project at Auckland Airport, saying the spending would force costs to be passed to customers.
"Domestic airlines cannot afford the extremely expensive airport [that Auckland] is setting out to build," O'Brien said.
"If NZAA were concerned about higher pricing for domestic airfares, we suggest [Auckland Airport] considers reducing prices for what is one of the largest costs to domestic and Tasman operators beyond fuel - airport infrastructure."
Increase below inflation - Air NZ
Air New Zealand general manager domestic Iain Walker said its domestic fare increases were below inflation.
"Our February domestic fares were up 2 percent year on year, which is below inflation and the increases we've seen in our 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."
Walker said that was the reason why airlines were concerned about the Auckland Airport redevelopment, "which will see charges increase from $9 per domestic passenger today to $46 in 2032".