The future of flight: Higher fares on the way

Airfares for business travellers crept up steadily during the past year and are forecast to climb again this year, shows a report done for the travel industry.

Research for Flight Centre's corporate travel arm, FCM, reveals that on domestic routes, Air New Zealand — which has 81 per cent of the market — increased average domestic published fares by 5.1 per cent last year, compared with the previous 12 months. The report estimates that these fares will rise by a further 4-5 per cent across the top routes measured.

On transtasman routes, economy class published airfares across all airlines increased 2.9 per cent and business class by 3.7 per cent during 2017, and there was likely to be a 3-4 per cent increase on key routes in both classes for the year ahead.

Last year in business class, there was an 18.5 per cent increase in fares across the top 10 routes studied.

The biggest increases were on city pairs out of Wellington travelling to Canberra, Melbourne and Sydney; and Christchurch to Melbourne and Sydney.

The research was done by business travel consultants 4th Dimension, which tracked prices since 2014 and has provided a snapshot of average airfares across the New Zealand market.

The price index is of the lowest available one-way fare in each class, weighted over selected routes for corporates, which typically buy less than a month before travel.

The report also shows which airlines offer the lowest domestic fares throughout the year.

According to 4D, average published domestic fares on Air New Zealand were $211, compared with $173 for Jetstar, which has about 12 per cent of the market.

Sean Berenson, Flight Centre NZ general manager product, said strong demand by businesses and rising costs for airlines, especially higher fuel bills, meant fares went up last year and would continue to climb.

Airlines had as many as 26 classes of fares on routes and while there would often be a handful of heavily discounted fares to entice leisure travellers and fill the plane, other fares would be much higher for those without the flexibility to book early — mainly businesses, which have a much shorter booking lead time.

"A leisure traveller can look to take advantage of cheaper fares because they have a lot of flexibility and tailor holidays that way. In the corporate world, the time between booking and flying is much shorter," said Berenson.

Jet fuel prices were up 22 per cent on a year ago.

"If you have a look at the price of crude, you've seen significant increases in that price. It has a very strong influence on the expense line of an airline and so the revenue line tries to move."

In New Zealand, there were just two airlines flying main trunk routes and more people travelling, which resulted in increased prices.

The 4D report finds that in the domestic market, across the main cities and regional locations, there are 343,000 seats on 3920 flights each week, with 54 city-pair combinations.

The research found that leisure travel into New Zealand represented 81 per cent of visitors last year and that has driven the surge of new airlines coming here.

This has led to competition at levels not seen before for both transtasman and international travel.

During the past two years, 11 new airlines have entered the New Zealand market including Qatar Airways, China Eastern Airlines, Philippine Airlines and China Airlines.

On average, 350 flights leave New Zealand each week for long-haul international destinations (excluding the transtasman route) on about 28 airlines.

For long-haul international, both economy and business class travel from Auckland to San Francisco and Singapore saw some of the highest increases in average purchase prices during 2017, something that is set to continue this year, given the airline mix on these routes. Air New Zealand flies in conjunction with alliance partners United Airlines and Singapore Airlines on both routes, rather than facing a direct competitor.

The study also studies companies' approaches to where their staff travel in aircraft.

"Long-haul international travel in and out of New Zealand requires preparation and stamina," it says.

For corporates travelling between Asia and New Zealand, the average flight duration is 10 or more hours and is considered "in region", so 70 per cent of travel policies require travellers to fly economy class.

With 24-hour-plus flights to Europe, 14-hours-plus to the Middle East and North America, 40 per cent of travel policies require economy class for their staff.

Those travelling in New Zealand needed to be aware of pressure on hotels at some times.

"The state of the New Zealand hotel market continues to be high demand and low supply. Accommodation constraints during peak tourism periods and major events have caused some corporate travellers to avoid making a trip or opting to take a day trip if travelling domestic."

The report says corporate travel budgets have become leaner, resulting in smarter purchasing behaviour.

"With improved technology we have seen another rise of virtual meetings in both New Zealand and Australia over the past two years. As technology and hardware has improved significantly, the virtual meeting trend will continue to grow as corporates determine it is cost effective, and avoids the wear 'n' tear on travellers."