It has written to the Minister of Commerce and Consumer Affairs Andrew Bayly urging him to direct the Commerce Commission to undertake a market study into New Zealand’s aviation sector.
Similar inquiries have been held into the fuel, building supplies, banking and supermarket sectors and today the minister said while sympathetic to Consumer NZ’s concerns and that he would like to see more competition, he didn’t think it was time to launch another market study..
Consumer NZ chief executive Jon Duffy said in sectors where any single company holds a significantly high market share, such as Air NZ, which holds an 86% share, there is a risk competition isn’t working as it should to keep prices reasonable.
The push by Consumer NZ comes as Air NZ rival Jetstar dropped another round of promotional fares into the market today.
In an eight-hour Halloween sale, domestic fares will be available from $35 (Christchurch to Wellington) and international fares will be available from $139 – Hamilton to the Gold Coast (next year).
In his letter, Duffy says: “Air NZ has significant market power. In recent times, consumers have faced ever increasing costs to fly.
Air NZ dominates domestic main trunk and regional routes. Photo / Brett Phibbs
“While there are a range of factors influencing price, there is limited transparency. Problematic pricing and opaque cost structures contribute to our view that an in-depth study into factors affecting competition is urgently necessary.”
Through a spokeswoman, Bayly told the Herald that air travel is an especially important form of connectivity for New Zealanders, and high airfare prices are difficult for consumers and businesses alike.
“There are broader economic issues which affect airline pricing. Rampant inflation has hit some sectors harder than others and increased input costs for airlines.
“Fuel and maintenance costs have increased significantly over the last few years, which has naturally flowed through to airfare prices. I also understand that our main carrier, Air New Zealand, has experienced engine issues with a number of its planes meaning it is not able to operate at full capacity.’'
New Zealand’s distance from the main aviation hubs and other big population centres, plus a small, dispersed population will likely always mean we are not an easy, or particularly attractive market for new airlines to enter.
“Even Australia which has about five times as many people, has struggled to support new, disruptive airlines.”
From a regulatory point of view there is very little stopping a new airline setting up in New Zealand.
‘’I would welcome any new competitors in the domestic airline market.
“From a consumer’s perspective price comparison websites offer transparency for airline pricing. I would encourage consumers to use these sites and look for alternatives where possible,’' said Bayly.
“Before we rush off and do another study, I want the Commission to focus on driving better competition and carrying out after-care for these studies and make sure we maximise the opportunities that have already been identified for improving competition, like reducing the regulatory burden on businesses.”
Air NZ said that should the Government choose to initiate a competition study into the aviation sector, the airline expected that the Commerce Commission would look at the industry as a whole, and consider all factors affecting competition in the aviation market.
Duffy said a market study would determine to what extent Air NZ may be taking advantage of its virtual monopoly.
“For many New Zealanders, there’s Air NZ or nothing – and high fares are affecting our regions.
“Our research has identified numerous red flags affecting competition in the sector that must be put under the microscope to assure consumers the cost of flying in NZ is truly fair.”
In addition to the limited choice New Zealanders have when it comes to air travel, Consumer was concerned high barriers to entry reduce the likelihood that other carriers will enter the market to compete with Air NZ.
Jetstar competes on domestic main trunk routes but gave up on a short-lived loss-making regional operation before the pandemic.
The Government is a 51% shareholder in Air NZ.
“We understand Air NZ is facing its own set of challenges, like constrained fleet availability and increasing costs in some areas.
“Our concern remains – NZ has the most concentrated domestic aviation market in the world¹, so when Air NZ says its pricing is fair, we are forced to take their word for it.
“A market study would tell us whether we can rely on what we’re being told.
“A Commerce Commission market study won’t solve anti-competitive behaviour, but getting information about how competition isworking in the sector will highlight what interventions may be necessary and provide confidence New Zealanders aren’t being ripped off.”
