Fare fright: Air New Zealand puts up domestic prices

Air New Zealand has pushed up domestic fares to cover what it says are soaring costs.

The airline has suffered heavy losses during the pandemic but says it is not playing catch-up, rather it is covering the increased cost of fuel, wages, and services from suppliers.

Chief executive Greg Foran told the Herald that on average domestic fares are up 20 per cent. They started moving up about three weeks ago.

The price hike is across the domestic network, including regional flights where high prices have sparked outcry before.

A price snapshot shows that one-way, seat-only fares between Auckland and Wellington next Wednesday range from $145 to $386. Auckland-Gisborne flights range from $163 to $300 - without a bag.

Grabaseat deals for after the October school holidays are being promoted for between $59 and $69 to the two places.

"We have to make sure that we get that balance between what is the price that is right, that allows the business to operate, and what can customers bear," said Foran.

Asked what customer response had been, he said: "To be honest with you very little. There's a very strong desire for people to get out there and travel and we're seeing that domestically."

Annualised inflation is running at 7.3 per cent in New Zealand and while the price of oil has come off highs hit earlier this year, the Platts Jet Fuel index shows it is 73 per cent higher than at the same time last year.

Foran said the airline was facing rising costs in all parts of its operation.

"We're not immune to cost increases from airports and navigation and Avsec (Aviation Security) and we're also doing what we can in terms of increasing the pay of some of our people who are less well remunerated in our industry," he said.

"I am cognisant of the fact that fares are up and we need to be careful that we maintain the right value equation for our customers. But we also restart the airline appropriately."

Short-haul international fares and long-haul fares weren't part of the recent price hike.

Foran said there was "very strong" demand across the Tasman and on North America routes.

Air New Zealand chief executive Greg Foran. Photo / Alex Burton

Travel agents say prices have been elevated since borders reopened due to high pent-up demand and a shortage of capacity. One-way fares across the Tasman charged by Air NZ and Qantas have topped $1000, not far short of lead-in return fares to Honolulu on Hawaiian Airlines.

Air New Zealand dominates the domestic network with Jetstar providing some competition on main trunk routes and some smaller carriers also flying to the regions.

Air New Zealand made a net loss of $591 million in the year to June 30, up from $292m in the prior financial year.

Its loss before tax was $810m - up from $415m and the airline's loss before other significant items and tax was $725m, up from $444m. The airline, 52 per cent owned by the taxpayer - has received more than $2 billion in direct operational support or indirect financial support from the Government since the start of the pandemic.

Foran said the price hikes weren't a matter of trying to recover heavy losses suffered during the pandemic.

"We're not in the game of trying to recoup lost profits. We are in the game of making a profit and an acceptable return based on the level of investment that we have. So this is not about trying to recover what was lost - what's lost is lost."