Air New Zealand chief executive Greg Foran explains why fares are going up. Video / Supplied
Air New Zealand says bringing back more planes will help keep a lid on fares but warns there are no signs of prices returning to pre-pandemic levels.
The airline's chief executive Greg Foran says it is facing a "perfect storm" of cost increases at a time when high demand onits still limited network is also driving up prices.
Compared to early 2020, airfares are on average 21 per cent higher, and on the Tasman route prices exceed this as the number of flights is only at 40 per cent of pre-pandemic levels.
Foran revealed that fuel for a Boeing 787-9 Dreamliner for an Auckland-Los Angeles flight that would have cost around $US42,000 ($67,000) in 2019 was now around $US90,000.
"It is a perfect storm - whether it is the cost of fuel, inflation generally or demand coming back quite strongly," he said.
While a boost to capacity in July in time for the school holidays will mean the Tasman is restored to about 75 per cent of pre-Covid levels and ease the tight supply of seats, costs would remain high and it was uncertain just how high fuel prices could rise.
Fuel was rising in price before Russia's invasion of Ukraine but in the past three months prices had climbed to near-record levels. For a long haul flight up to a third of the ticket price was fuel costs.
Last week the Herald reported a Mastercard study found that to the end of April the average airfare around the world that travellers paid, adjusted for the distance flown, increased roughly 18 per cent since the start of the year.
A Stats NZ index shows domestic airfares have risen by 12 per cent from the first quarter of 2019 (before the pandemic) to the same period this year and international fares are up 50 per cent.
Foran joins other airline chiefs in Doha next week for the annual meeting of the International Air Transport Association, where they will share similar experiences - high demand and high costs.
Demand for travel to places like Rarotonga is strong. Photo / Cook Islands Tourism
The Platts Jet Fuel Price Monitor today showed prices up 128 per cent on this time last year.
Foran said it was hard to judge where fuel prices would peak, but said anyone doing the shopping knew the impact of inflation in other areas too.
"What you're seeing in the supermarket plays out when we're preparing meals and what you're seeing in general inflation plays out when we're negotiating collective employment agreements," Foran said.
Spooling up
About 4000 Air New Zealand staff lost their jobs in the first phase of the pandemic but about 2000 jobs had been filled during the last year, as the airline rebuilds. It was looking for a further 1100 staff in the coming months, including in its under-pressure call centre.
"It's a lot easier to shut an airline down than it is to get going again. We are ramping up carefully to ensure we have sufficient resource across the business to get the job done safely," Foran told customers.
From July it was adding another 14 destinations to its network with 40,000 more international seats.
It was also bringing back up to five Boeing 777-300s out of storage this year. A third aircraft was being ''re-animated'' now and another two could join the 14 Dreamliners on its international network by the end of the year.
The airline's cost and ticket price equation has so far worked out in Air New Zealand's favour this year, last week announcing its full-year loss at $750 million is $50m less than earlier forecast - reflecting customer willingness to pay higher fares.
With surging inflation but still high pent-up demand for travel from those who had saved up during the last two years, airlines which operate in uncertain environments in ''normal times'' were facing an even more volatile outlook.
"Normally, when you start to get about 20 per [cent increases in] pricing then you're possibly going to see some waning of demand but this is such a volatile complex world that we now find ourselves [in]," Foran said.
Air NZ Boeing 787-9 Dreamliner at Auckland Airport. The airline has 14 in its fleet. Photo / Grant Bradley
This new environment would test demand elasticity.
"When I talk to customers they will often say 'I'm going to Rarotonga - I owe myself a holiday and I'm going'," Foran said.
They may take a holiday two or three times but then baulk when they take stock of surging prices.
Foran said businesses need to "have both hands on the wheel" to navigate the bumpy economy.
"I think you have to adopt a long term approach to this and take into account the fact that it's going to be volatile for a little bit longer yet."
The airline had more than 100,000 fares under $100 on its domestic network over the next three months.
In advice to passengers the airline said:
• "We recommend you book early. We know that travel looks a little different these days but planning in advance will help ensure you're getting the best fare."
• "If possible, travelling outside of peak times will also help. Travelling in the middle of the day or looking a day or two on either side can make a big difference."
