Fare hikes hit Air New Zealand domestic routes

Air New Zealand has increased fares on some domestic routes, and more hikes are planned for other routes.

The national carrier’s half-year profit plummeted 39 percent, from $213 million to $129m, on the same period last year.

It has warned that the second half of the year will be bumpy too.

The airline says it has been hit by inflation, rising fuel prices and engine maintenance issues.

That’s despite passenger revenue cracking $3 billion – a jump of 21 percent, largely due to long-haul flights.

Air NZ chief executive Greg Foran told Checkpoint domestic fares were kept low for much of 2023.

“At the same time, we’re dealing with some pretty significant inflation.

“So what we’ll be doing is just sensibly going through and instead of absorbing as much of the inflation as we have, we’ll need to pass some of that on.”

Stats NZ figures showed the annual inflation rate down to 4.7 percent in the three months ended December, from 5.6 percent, the lowest since June 2021.

However, he said long-haul flights out of North America had seen a drop in fares.

“It’s just sensibly realigning the business based on where we see pressure points.”

He said the airline would also look at ancillary costs.

“…how much does it cost for someone to take their pet or what is it for an extra bag?

“We’ve been very careful to keep pricing very reasonable during this period because we’ve been incurred with covering some pretty significant inflation numbers, now’s the time to get a bit of that back.”

Routes with more demand were more likely to see an increase in fares.

“It depends really on how the capacity plays out … if there’s more demand in a particular area, then you can often get a little bit more pricing out, if there’s less demand the last thing you want to be doing is flying empty planes, so it’s a sensible, measured approach.”

He was happy with the airline’s position now, but said there was a need to prepare for turbulence ahead.

“We can see a bit of pressure coming on to us … coming out of corporate and government in terms of those sort of bookings as they tighten up”.

The margins of the domestic business were “considerably less than what they were pre-Covid”. Foran would not share the details.

Price hikes

Some domestic routes were already seeing price rises.

He would not say which of its 20 domestic routes, just that “wherever we can actually see that it makes sense to do so”.

“We measure each particular route each month and it’s something that we’ve just begun and we’ll continue to work our way through that.”

Asked if people could expect domestic airfares to go up, he said: “They can.”

Flyers could compare fares with other airlines, he said.

“There’s no point in us running a business domestically where we’re not making the sort of returns that we need to, to reinvest back in the business.

“You might say, ‘gee, a profit of $200m for the business, a big profit’. Costs you $200m to buy one wide-bodied plane. If you have a look at the return on invested capital, it’s not a significant return.

“We’re not in the business of running a charity. We’ve got to get a return on investment, at the same time, we’ve got to look after our customers. So while we’re talking about pricing, let’s also not forget that during this period, not only have we been holding prices down domestically, but we’ve been improving the experience for customers and that’s something that we also measure and also share.”

He said the airline’s domestic revenue was strong.

“The issue is we’ve been incurring cost in this business, haven’t passed it all on, now we need to pass some of it on, that’s just the reality.”

New Zealanders were feeling the impact of price hikes in all services, he said.

Air NZ has called for a review of the Auckland Airport’s redevelopment costs, saying its regulated charges would make flying unaffordable for some.

“One of the things that we’ve been doing is pushing back on Auckland Airport for example, because we know that’s going to be a challenge.”

There was a hiring freeze at the airline.

“… very, very tight on headcount in terms of what we need apart from any areas where it’s clear that we need them, fr example, aircraft engineers. So we’re very prudent about how we’re spending money, taking a very responsible long-term approach to this and the business is actually functioning very well.”

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