Some airport bosses believe the regions are suffering from high airfares because Air New Zealand’s dominance of domestic flights.
An initial assessment of whether a competition market study into domestic flights would be worthwhile has been completed by Commerce Commission this week — with the outcome a disappointment for regional airports and the regions they served.
In regional airports, most often than not, there is little to no competition for flights from the big centres and often the only choice was the national carrier.
Invercargill Airport chief executive Stuart Harris told 1News he has noticed the impact that had.
“Airfare prices in Invercargill at the moment are certainly high enough that it is putting people off.”
He said he has heard stories of people that want to go places but find out the price and just say “no… it’s too much”.
Air New Zealand acknowledged it was hard for passengers. Chief executive Greg Foran said, “we’re cognisant of that [prices] and doing our best to keep costs down but we’re dealing with some structural issues here.”
He said the company has experienced costs such as parts to keep planes going and landing fees.
“Fuel tends to go up and down, we’ve obviously got labour… we’re doing a reasonable job of managing that.”
Invercargill Airport has kept an eye on airfares for the past six months through its own study in prices across its now two direct services – Christchurch and Auckland.
The Wellington route was put on pause by Air New Zealand in November, meaning travellers to the capital had to go via Christchurch. Still, the cost of flying to Wellington from Invercargill has increased by 27% in the past six months.
Harris also said airfares had also had flow-on effects for the city.
“In the last few months, the people who are bidding to hold events and conferences have missed out on three events — solely because of flight availability and costs.”
But the Commerce Commission has declined to intervene, for now at least.
“Our initial assessment suggests a competition study would not be an effective way to drive stronger competition in the domestic air travel sector at this time,” it said, this week. “This is because some of the most significant factors driving current concerns are structural and the result of economic factors wider than competition issues alone.
“The routes without significant competition tend to be regional routes that are expensive to operate and therefore not very attractive to competitors. It’s hard to see how an intervention that encourages competition would make much difference on those routes.”
NZ Airport Association chief executive Billie Moore disagreed.
“The report we’re seeing from the Commerce Commission… goes through a number of key issues around the structure of the aviation sector. But there’s no airfare analysis, no yield analysis, no cost analysis, nothing around capacity over time.”
She said places such as Hamilton have had no growth in service for 20 years.
“It’s missing the point that we are dependent on one operator that, unfortunately, is facing huge challenges and that is the result of a lack of competition over a long time.”
Meanwhile, Foran told 1News: “If you had more competition, would the prices go down? Yes, they would. But would the organisation or business necessarily be profitable? Probably not. And that’s why there’s a distinction here.”
Back at Invercargill Airport, Harris said the government, as 51% owner of the national carrier, should step in to help cap domestic flight costs.
“I think there’s a bit of a hybrid where government might just say, look, there’s a minimum revenue guarantee on certain routes… here’s a set number of routes up and down the country we’d like you to fly this many times per day for a maximum airfare of this number.”
The government would then “help fund the shortfall between what you can earn versus what you need to do to cover your costs”.
In the meantime, Air New Zealand’s Foran said: “We do our very best to keep our prices as low as what we possibly can, appreciating that other stakeholders require us to make a moderate profit so we can continue to invest.”