Air NZ could reverse fare rises

Air New Zealand says its 10 per cent price increase could be short-lived on the transtasman route as the proposed codeshare agreement looks likely to force it to match lower fares by Qantas.

The Australian carrier lifted its fuel surcharges yesterday in response to the soaring international price of jet fuel.

But its increase translates to a much smaller rise in ticket prices compared with the blanket 10 per cent imposed by Air New Zealand a week ago.

Qantas has lifted its fuel surcharge by just A$5 on all its domestic routes including New Zealand, A$10 on transtasman routes and A$23 on international routes.

That compares with Air New Zealand's rise of about $50 on transtasman fares.

The differing increases create a price differential on the transtasman route that will be unsustainable if the proposed codeshare agreement is put in place, Air New Zealand conceded.

The airline "couldn't afford not to" match Qantas once the codeshare was in place, spokesman David Jamieson said yesterday.

"How could we afford to be more expensive than competitors?" he said.

Under the codeshare agreement, the two airlines have applied to be exempted from requirements not to co-ordinate pricing, he said.

Goldman Sachs JBWere aviation analyst Peter Sigley said the strategy made sense.

"On the transtasman the only smart thing for them to do would be to have the same fare base," he said.

Differences would be too obvious to travellers under a codeshare and the key issue for both airlines was to fill their seats.

Air New Zealand had enough dominance on domestic routes that it could cope with the small price differential, Mr Sigley said.

The codesharing agreement - which the airlines have proposed because they are losing money on the transtasman route - still has to get regulatory approval here and in Australia. That means it is likely to be at least six months away from becoming a reality.

In the meantime, Air New Zealand's prices rise from Monday and the new Qantas surcharges take effect from next Friday. Mr Jamieson was not prepared to comment directly on the Qantas increase but said there were some key factors making Air New Zealand's situation different from other airlines.

The New Zealand currency had fallen further than the Australian against the US dollar and Air New Zealand was also reaching the end of its favourable hedged prices.

Across the industry hedges varied tremendously and could make a huge difference to fuel costs, he said. There was also the fact that Air New Zealand had not been fully recovering the cost of fuel for some time.

"The combination of all those factors means we determined that the price rise announced last week was appropriate."

Although fuel prices stayed high the bottom line was that these rises weren't the last for Qantas or Air New Zealand, Mr Sigley said.

"You've either got to pull the revenue lever or the cost lever. And they are pulling both as furiously as they can."

Qantas was not prepared to comment on the price differences.


Fuel surcharges

* Qantas NZ domestic - $34.84 (incl GST) + $6
* Transtasman - $66.86 + $11
* Air NZ planned to add 10 per cent to base fares, meaning increases of about $50 on transtasman route.