Air NZ's A320s opeate on its main trunk domestic network. Photo / Natalie Slade
Air NZ's A320s opeate on its main trunk domestic network. Photo / Natalie Slade
OPINION
Like banks, it’s much better if airlines are profitable. Failing banks hurt us all. Hard-up airlines can be can be shabby and worse, dangerous. But how big a profit is too big?
The Australian-owned banks (and some other companies) are good at running a dual narrative – one forshareholders about how well they’re doing and one for the public and staff about “margins being squeezed” and “challenges ahead.”
In a stunning change of fortune, this is the “messaging” Air New Zealand will have to grapple with later next week. It could well make NZ corporate history with the size of its financial turnaround when it announces its full year profit on Thursday.
From a $507m bottom-line loss last year, after-tax profit is forecast to be around $426m.
If you’ve had to book a flight with the national carrier, especially at short notice, over the past 18 months you’ll know why: Air New Zealand’s creaming it.
Airlines burn money quickly when demand is collapsing, as seen when the pandemic hit in 2020, but they can earn it just as quickly when demand is high. They’re close to a pure example of how demand and supply works. If someone needs one of those last few seats that airlines set aside for last-minute bookings, they’ll pay through the nose.
Air NZ will remind you that at any given time, tens of thousands of sub $100 fares are available – when it wants you to fly. But life can get messy, happy and sad. Births can happen early or late, and illness, death and funerals don’t fit neatly into long-term booking windows - where you do save.
In New Zealand right now there’s a choice of two airlines only on main trunk routes; Air New Zealand and Jetstar.
Three flights our family booked at a few days’ in advance of travel between Auckland and Wellington recently were significantly cheaper on Jetstar than on Air New Zealand. One this week was $70 on the Qantas subsidiary compared to $349 on New Zealand’s national carrier. That’s a $279 difference. You’re travelling on the same sort of plane for the same length of time.
The carry-on luggage rules are the same – although perhaps more rigidly enforced on Jetstar and you have to pay for refreshments on that airline, if you need them for what’s often a flight of less than an hour. You’re not going to get a cookie or small bag of chips with tea or coffee and water and a sweet that you are offered on standard Air NZ jet flights.
But for the morning one-way trip booked for today, those extras would work out costing $279.
Jetstar has had schedule reliability issues but this morning’s flight got away 10 minutes early. A flight last week on Jetstar got away 15 minutes early. Clear rules for passengers are enforced by the airline, which has not yet restored its pre-pandemic domestic NZ capacity but also has a less ambitious timetable.
The Jetstar flight from Auckland to Wellington landed 11 minutes early. Photo / Supplied
The flights are of course just a minuscule sample. Price snapshots don’t allow for long-term averages or events driving demand spikes.
But anecdotes swapped at an event I was at in Wellington last week about Air NZ prices were sometimes startling, especially from those travelling from the regions where there practically is no choice. My return journey on Jetstar was $170 compared to $419 for flights around the same time of day.
The price difference shows Jetstar is finding it tougher to fill planes than Air NZ which has about 80 per cent of the domestic traffic, a big corporate customer base and more than four million loyalty members who are incentivised to book on it.
In Australia where Qantas and Jetstar are dominant they enjoy those same advantages have more pricing power and also get bagged for what they charge at a time when travel can be a worse experience than before the pandemic. And Air NZ among other global airlines is not alone in enjoying record yields and heading for super-profits with sky-high demand at a time when capacity hasn’t recovered.
The Government owns 51 per cent of the airline on behalf of taxpayers, who provided direct and backstop funding of more than $2 billion during the pandemic to a company that was too important to fail.
The return of dividends is getting closer, thousands of more staff have joined the hard-working front-line team and the airline has returned to contributing strongly to the economy. That’s good news.
There’s rarely any profit too high for a shareholder – but Kiwis who have been paying high fares on the national carrier have paid for it.
Those who have the option and are prepared to forego a cup of coffee and a cookie may want to shop around next time they fly.
Grant Bradley has been working at the Herald since 1993. He is the Business Herald’s deputy editor and covers aviation and tourism.
