Why Air New Zealand domestic fares are heading up - again

Air New Zealand long-term domestic fares across all routes went up at midnight amid “challenging” operating conditions as cost of living pressures grow.

As revealed by the Business Herald last week, the airline warned agents that all existing bookings must be ticketed on or before midnight on Monday, April 22, to avoid the new fares. The airline - 52 per cent owned by taxpayers - has blamed cost increases for the rises.

Although there was no percentage figure disclosed, the latest surge in prices comes as the airline warns that soft demand will hurt its bottom line financial year.

In a profit update yesterday, the airline said it has continued to see softening in revenue conditions over the fourth quarter both domestically and on the North American market.

“Domestic performance has seen ongoing softening, with challenging economic conditions and ongoing cost-of-living pressures. Government and corporate demand remains subdued,” it told the NZX.

North American performance continues to be impacted by very competitive pricing pressures, as the market adjusts to the significant capacity added into the New Zealand market by US carriers, the airline said.

Air New Zealand has cut its pre-tax earnings guidance for this financial year by $40 million to $50m due to worsening market conditions.

The airline now expects its pre-tax profit to come in at $190m to $230m, down from a previous guidance of $200m to $240m.

While it faces hot competition on long haul international routes, it has more scope to increase prices on domestic services where it is dominant with more than 80 per cent of the market.

Air NZ says its pricing will remain “dynamic” and vary depending on demand, type of aircraft and length of flight.

Acting general manager domestic Jeremy O’Brien said that like many Kiwis and businesses, Air New Zealand has faced increasing costs over the past couple of years.

‘Cost base’ rising

“As we’ve previously signalled, our cost base has risen by more than 30 per cent and, to date, we’ve absorbed as much of this as we can. However, to reflect the higher cost of providing air services, we need to continue to review our pricing.”

On many routes it is the only carrier, although it faces some competition on main trunk jet routes from Jetstar.

A survey last week found the domestic airfare market was regarded as the least competitive of any business.

Air New Zealand and other airlines are in a bitter dispute with Auckland Airport, which will raise aeronautical charges to pay for billions of dollars of new infrastructure. The latest air fare increase will further fuel this.

Stats NZ figures show domestic airfares rose by 7.4 per cent in February.

As airlines have called for Commerce Minister Andrew Bayly to look again at rules covering airports’ price setting, airports have called for the Government to monitor airline prices and performance.

NZ Airports Association said Air New Zealand had hiked its average domestic network airfares by $51 to $200 per one-way airfare for the year ending September 2023, which was a 34 per cent rise on the previous year.

The airline, and others, were concerned about the Auckland Airport redevelopment, which the say will result in charges increasing from $9 per domestic passenger today to $46 in 2032.

Grant Bradley has been working at the Herald since 1993. He is the Business Herald’s deputy editor and covers aviation and tourism.