Will Air New Zealand's gamble on higher domestic fares pay off?

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Some passengers RNZ spoke to said price hikes might just price them out of the market.
Photo: RNZ / Nate McKinnon

New Zealanders are digesting news they will have to pay even more to take flights around the country.

Air New Zealand CEO Greg Foran told Checkpoint on Thursday domestic fares will be increasing to help the airline deal with rising costs.

Some passengers RNZ spoke to said that might just price them out of the market.

“It’s definitely less incentive to go visit my family in the South Island, not having a car and the price of the ferry is pretty expensive as well,” one Wellingtonian said. “It will definitely make me fly less.”

“It seems like international prices have gone down or stayed the same, so I don’t get why domestic has to increase,” another said.

But Foran said inflation had hit hard, and there was no option but to increase domestic air fares.

“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.”

‘They need to get over themselves’

That ruffled the feathers of aviation commentator Peter Clark.

“For them to say it’s not a charity, I think they need to get over themselves. They are an airline, a transport business and they are there to provide it. If they can’t provide it, get out of the business.”

Clark said domestic flights were an essential service and long-term price hikes would have a detrimental effect on access to the regions.

“They are the national carrier and they’ve got to remember that and that’s the priority. We own it, the government owns it, the shareholders own it and I expect more accountability from Air New Zealand for its operations, especially domestically.”

Greg Foran.
Photo: RNZ / Samuel Rillstone

He wanted the airline to consider cutting international routes, such as Auckland direct to New York and Chicago, saying they were expensive, low-profit flights.

But Consumer NZ’s Jon Duffy told Midday Report as long as Air New Zealand was upfront about why airfares are rising, it may be something people just have to bear.

“It’s not cheap running an airline. I think everyone acknowledges that there are really expensive inputs that go into running an airline and legitimately prices may need to rise at some point. It’s just about being transparent about that.”

While Air New Zealand said passengers could fly on other airlines to avoid the price hikes, Duffy said it was the only one flying into certain regions.

“You’ve got Jetstar and sometimes others as an alternative, but really it is a duopoly. There’s no alternatives – for example, a fit-for-purpose rail system that people could use as an alternative like they do in Europe or the United States.”

Independent aviation industry expert Irene King agreed the options were limited, but she said ultimately consumers drove the market.

“Air New Zealand might hope that’s air fares are going to go up but that’s dependent on customer demand. So, if the customer demand is strong then yes, they’ll be able to sustain increased airfares, but if it’s weak they will be cutting their airfares and trying to encourage us all to fly.”

King said consumers were exhausted by rising expenses and were becoming complacent. She said people needed to be much more proactive to beat the air fare hike.

“Think about well, ‘I’ve got to go to a wedding or a party, so let’s plan it months in advance,’ and then you will get the cheaper airfare. If you leave it to the last minute you’re taking a gamble.”

Air New Zealand had not clarified which domestic routes will be impacted and how much prices would go up.