Pressure is mounting for top-level scrutiny of increasing domestic airfares as Air New Zealand says it can defend its price rises.
Commerce and Consumer Affairs minister Andrew Bayly said in the midst of a cost-of-living crisis, he was concerned with rising domestic airfares and hasn’t ruled out a market study into the sector.
“In general, fostering competition to get better prices for Kiwis, across a range of sectors and industries, is something I am focused on,” he said.
His comments follow a survey which showed the domestic airfare market is regarded as the least competitive of any major sector.
Consumer NZ wants a market study of the airline sector to find out whether competition is working, and the Labour opposition is pushing for a select committee inquiry into prices for travellers across the aviation sector.
Bayley said options were open.
“The Commerce Commission is finalising a market study into personal banking services, due for publication in August. After this study is complete, I will consider options for the next market study. No decisions have been made in this yet.”
He said the commission was currently reviewing Auckland Airport’s proposed charges - which make up about 5 per cent of domestic airfares.
“I am looking forward to receiving the draft report in May. My intention for both of these studies is to get better outcomes for Kiwis.”
Arena Williams, Labour’s commerce and consumer affairs spokesperson, said she wanted to ensure New Zealanders were getting a fair deal.
She has proposed the Transport and Infrastructure Committee open an inquiry into airfield services and airline competitiveness, to consider whether domestic prices are fair.
Williams wants a bipartisan approach to getting lower air fares and updating rules for airports.
A Horizon Research study found the domestic airfare market has been ranked New Zealand’s least competitive, trailing supermarkets, banks and petrol companies.
The survey found that 75 per cent of respondents considered the domestic aviation market – overwhelmingly dominated by Air New Zealand with more than 80 per cent of flights – to be the least competitive. The Government owns 52 per cent of the airline on behalf of taxpayers.
Airfares in this country climbed between 20 and 30 per cent a year following the lifting of pandemic travel restrictions as demand surged and airline costs soared.
The rate of domestic airfare increases has slowed but between January and February they were still up 7.4 per cent, according to Stats NZ. Air New Zealand put up long-term domestic fares last week as it faces a tough second half to the financial year and costs that are still rising. Other airlines have increased fares. Sounds Air in March announced it would be putting up prices by $50 each way between Taupō and Wellington and to and from Westport from the capital.
Auckland Airport - locked in a dispute with airlines over the cost of infrastructure - says the average domestic airfare now is up $44 from 2019.
Consumer NZ communications and campaign manager Jessica Walker said a market study could look at passenger rights as well as competition.
“We think there needs to be a market study into the airline industry to address these, and other, competition issues.”
The Commerce Commission has looked at building supplies, fuel and grocery markets during the past five years and has been damning about aspects of their operation.
Air New Zealand last week increased domestic fares again but chief executive Greg Foran said he would be “fine” with a market study.
“Air fares were a topic that were on people’s minds - like pricing in many sectors- but airlines probably gets more attention than others. The discussion around airfares has not surprised me in the slightest,” he said.
“If he [Bayley] decides he wants to do a study, then I think that’s fine. I‘d be quite happy to open the books up. We know all these costs down to three decimal places because this is our business - we live it every single day.”
Foran said all New Zealanders had experienced surging inflation and the airline wasn’t any different.
Fuel, at least 25 per cent of the airline’s expenses, had increased 25 per cent in the past year, airport landing charges were up by 37 per cent in the past two years, and government agency charges were up. The wage bill was $801m in the six months December 31, up $114m, as staff numbers approached pre-pandemic levels and inflation fuelled pay increases.
He said Emissions Trading Scheme costs had increased from $13m a year in 2019 to $40m.
“Our hotel costs are up, our dry cleaning costs are up, our costs for servicing ground service equipment are up because every supplier has had costs go up,” Foran said.
“I absolutely understand that people [say] it’s expensive to fly, but it’s much more expensive when you go to the supermarket, it’s more expensive when you go to a restaurant, it’s more expensive when you get your dry cleaning done.”
Air New Zealand’s profitability is under pressure as it faces increased competition on North American routes and has had to suspend some flying as it grapples with aircraft engine issues. With dominance of the domestic market, it has more scope to push up fares here.
Its cheapest long-term domestic fares went up from $59 to $69 in April and the top fare had increased from $490 to $520.
Airfares are in the system 12 months in advance of flights and Foran said the best way of getting a good deal was to book early.
The New Zealand domestic market has been a graveyard for most contenders to directly challenge Air New Zealand. Jetstar’s regional operation was the latest to fold (in 2019) but it is Air NZ’s competitor on main trunk jet routes.
Foran said he had no problem with any competitors entering the market. Throughout his international business career, mainly in the retail sector, this is what he expected.
Air New Zealand needed to make a profit in a sector where average margins are traditionally thin.
“We do have a responsibility to make a profit [and] we can continue to invest in the business.”
Consumer NZ’s Walker said her organisation didn’t think New Zealand laws provide adequate protections for consumers whose flights are cancelled or delayed.
“Passengers in the European Union and US have much better protections, and we’ve been calling for similar protections here for many years.”
In particular, Consumer NZ believes passengers should be entitled to a refund if their flight is cancelled or substantially delayed, for any reason.
Currently, airlines are only required to refund passengers and cover costs they incur when their flights are disrupted in limited circumstances.
But the airlines don’t always proactively tell passengers about their rights.
“Instead, people need to be clued-up about their rights to be able to enforce them against the airlines. And even when they successfully claim a refund or other costs, they may not see it back in their account for months. This all needs to change,” Walker said.
Consumer NZ says airlines should have to provide:
She said Consumer NZ raised these issues when the Civil Aviation Act was reviewed in 2019 and 2021 but the new Civil Aviation Act has not addressed our concerns.
“We’ve also been calling for new rules to put an end to ‘sneaky fees’ (such as the cost of a seat) for many years. Businesses should be required to be upfront about the cost of their goods and services, rather than sneakily tacking on additional fees during the booking process.”
The Ministry of Transport says more information disclosure is coming - but not for some time.
The Civil Aviation Act 2023 covers regulations requiring information disclosure in the aviation sector, including providing information about passenger rights, as well as performance data including passengers and freight carried, on-time performance and air-fare trends.
A spokesman said the ministry and the Civil Aviation Authority were undertaking a programme of work to implement a new act.
The focus will initially be on “core system components”, specifically those relating to safety and security, prior to the Act coming into force in April next year.
“Once that is complete, and as resources permit, the Ministry of Transport will be able to turn their attention to new matters, and information disclosure will be amongst those that the ministry considers for prioritisation.”
Grant Bradley has been working at the Herald since 1993. He is the Business Herald’s deputy editor and covers aviation and tourism
The airline sold its last slots at Heathrow in 2020.