Between the lines: Message behind Air NZ's fare lifts

Airline fares have been like oil prices almost since Ansett New Zealand took on Air New Zealand on domestic routes.

One would raise the fares and within hours the other would follow, with perhaps a 50c difference here and there. But there's a change in the wind.

Two weeks ago Ansett, which will fly as Qantas NZ from September 4, raised its fares by 5 per cent on all routes, effective July 31.

Now Air New Zealand has made its move - and it has done something different.

Most of its tickets will rise by 7 per cent, but for travel and bookings from September 1.



It has also lowered prices for some advanced booking fares on popular leisure routes.

Both airlines blame higher fuel costs and the weakness of the kiwi dollar against its US counterpart for the increases.

Ansett NZ chief executive Kevin Doddrell said oil prices had doubled in the past year and would cost the airline an extra $20 million a year.

A price rise earlier this year had already been wiped out by subsequent cost increases, he said.

Air NZ's fuel costs have risen about 40 per cent since its last price rise.

No one is doubting the validity of these arguments, frequently cited by analysts who have spent much of this year trimming their Air NZ profit forecasts.

But the analysts will be paying scant attention to the lower prices the airline is offering to leisure travellers.

In themselves, the discounts will not have much impact on the bottom line forecasts, but they may have a marketing edge.

Air NZ says it is knocking $45 off a 14-day advance purchase return trip from Auckland to Wellington and $62 off an Auckland-Christchurch return to create a "fairer balance" across its target markets.

Analysts say it's a way for the airline to stimulate demand in the leisure market and lift total revenue.

It is significant that Air New Zealand has decided to shift away from the "two airline" policy as its principal domestic rival becomes identifiably Australian.

It may be a way to see what leisure traffic it can win while being protected by the increase in total revenue from less price-sensitive business travellers, most of whom will have to take fare increases in their inelastic strides.

The bottom line is that business travellers greatly outnumber leisure travellers, most of whom pay well in advance for their tickets and are less valuable to the airlines.

In marketing terms, it is Air New Zealand showing the reflagged Ansett who is the dominant player with a display of price leadership.

Ansett NZ yesterday gave no indication of how it might respond to the changes by its rival.

Only an eternal optimist could hope that it will choose to challenge Air NZ's tinkering with a price war that takes fares firmly in the downward direction travellers expect at the end of their flights.

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