Air NZ's new A321neo will be used on main trunk routes. Photo / Supplied
Air New Zealand has been accused of price gouging to make up for heavy losses during the pandemic and has just substantially upgraded its forecast profit. Here Iain Walker, the airline’s general manager domestic, explains the pricing system for flights around NZ.
How does the Air NZ set its fares?
On domestic there is a range of 15 price points. For travel a year out on an Auckland Napier flight prices range from $59 to $356. Price points are allocated to each seat 12 months out (the maximum time for booking) there might be five seats at $59, five at $69 all the way up to $356 for the last three seats. As the plane gets booked the lowest price seats go and so the price goes up over time. The $356 seats are often not sold but this Christmas it is different. More higher price seats In spite of offering as many seats as possible, there are still 250,000 customers who have already booked and flights are nearly completely full.
How does the pricing algorithm work?
At any given time there are around 150,000 flights for sale so revenue managers need to use computers set a range of air fares (at the 15 price points). The airline needs to cover the cost of the flight. If there was one price point (such as the $100 or less charged for three million seats over the last 12 months) that would be challenging because they would all sell out. The airline wants to get as many passengers to as many places as possible so pricing has to encourage this.
Can people override the machines?
Yes. There are six revenue management analysts (from among a 60-strong revenue team across the airline. The computer system will only go so far so revenue managers go out to the regions to talk to flyers and other stakeholders to help piece together what the likely booking demand will be and then work closely with the networks team to meet that. They can override the machines at quick notice. When pricing to Christchurch surged dramatically following the 2019 mosque attacks, revenue managers capped prices within 30 minutes. The computer only gives a computer answer but analysts give a human angle.
How quickly are the cheap seats running out?
What the airline sees today isn’t reflective of one to two months ago when the average fare to travel around Christmas was around $150. Customers have been getting the message about booking early and those fights have been filling up earlier. While the airline would like to have more planes and crew it has gone to its maximum. The number of seats this month is on the same level as pre-Covid but there is a higher demand. Domestic leisure travel has remained very strong – there was a feeling that Kiwis would be lured overseas but that hasn’t affected demand for domestic travel. The challenge for Christmas is that everywhere is booked out and we’re adding as many planes as possible to meet that.
When checking online why do prices change from day to day and when you check them on different devices?
The airline doesn’t change the price per customer or device but what happens when someone sees a different price is that allocation of prices to seats – they see a higher price point because that seat has been sold. That can work in reverse – cancellations can free up seats from day to day and the price goes down.
(Consumer NZ has a view on being followed by companies on apps. “Unlike in Europe, our privacy legislation doesn’t cover the concept of ‘algorithmic transparency’. This means businesses can use what they know about consumers to determine their willingness to pay. Browsing in incognito mode could be a double-edged sword. It could protect consumers from potential prise-raising, but could also mean if you’re a loyal customer, you miss out on associated deals. Under the Privacy Act people have the right to request their personal information from businesses. So if you want to know what a business knows, ask them.)
What is the outlook for fares?
The trend will be down. The airline is bringing in more capacity with the arrival of two new Airbus A321neos. (The planes have 217 seats and that will add around 550 seats a day to the 35,000-40,000 seats the airline flies daily). Although there continues to be very strong demand in late February-March there are 100,000 fares for under $100.
Is there a best day or time of the day to book a fare if you want to get a bargain fare?
Any time of the day works the same and there’s no particular day when there’s a greater likelihood of cheap fares. They are reviewed from day to day and offered when a plane isn’t filling. Planes are full at the moment (although a few seats are still blocked off around Christmas for emergency travel and to accommodate late booked travellers connecting from international flights) so there is little chance of summer holiday deals. To get a deal, it is all about how far in advance you can book. Book early and if you have flexibility with timing around the middle of the day and the weekend.
What about standby fares?
As a rule they’re not offered. The airline wants pricing to be consistent so if passengers book early they get the best deal and don’t feel that fares will be dropped later to fill a plane. It ran a subscription trial, Grabaseat Gotta Getaway for selected Airpoints members to find out whether it could be rolled out more widely. Under the trial for an annual cost of $95 they got up to 50 per cent off selected return flights around NZ when booked within seven days of travel.) The trial was a success and similar subscription models are being rolled out by several other airlines around the world. Some limited Regional Gotta Go one-way set price seat fares that are available (these can be bought via the airline’s contact centre between 60 and 90 minutes before departure, for flights to or from a regional New Zealand airport). Compassionate fares are available with conditions outlined on the website and from the contact centre.
Are you price gouging to make up for lost revenue during the pandemic?
Absolutely not. Airfares are up 20 to 30 per cent above pre-Covid levels but costs are up 30 per cent. More capacity will allow costs to be spread over more seats and they will come down. It is not known how a tougher economy will affect travel demand - the other part of the fundamental economic equation.
Jetstar’s capacity is also reduced. Are you taking advantage of less competition?
Not at all - we welcome more capacity anywhere.
Alaska Air has taken over and already deals are being offered to boost traffic