Thursday, 26 June 2014

Just how badly are we being screwed?

Those of us who live outside the main cities get royally screwed by Air New Zealand. We all know this even though it's difficult to document properly - complex pricing doesn't only suit mobile phone companies.

Things are different on the main routes because they have enough travellers to support competition
from Jetstar. On those routes, the airports have stronger bargaining positions than airlines, to the point that three of them are regulated, albeit in a pretty light-handed way: they are required to publicly disclose detailed information about their costs and prices.

The boot is on the other foot for regional airports, who are keen to retain and increase airline capacity, but there are no corresponding disclosure obligations on the only nationwide carrier: Air NZ.

It is not unreasonable to suspect that AirNZ is using super-profits from regional travel to help it compete harder on competitive routes. That might be a good thing overall, but there is an obvious risk: that rivals get driven out of some routes which revert to monopolies.

The really interesting question though is what, if anything, could/should be done to promote competition on regional routes. I'm not sure of the answer, but I wonder if a carefully designed information disclosure regime might be helpful. Australians have way better public data on such things, including detailed airport-level data on plane movements and passenger counts. Copying this would be a good start, but there might also be a case for requiring the dominant carrier to disclose average fares. The benefits would be a better understanding of the scale of the problem and of where the dollars are for entrants. There would also be costs, but surely this is at least a question worth asking?


  1. Air NZ's pricing structure is anything BUT complex. It's probably the most transparent I've seen.
    Require a carrier to disclose average fares, costs and prices? Commercially sensitive data?
    The reason that fares are high on regional routes is the lack of potential economies of scale:
    a) the turboprop fleet has horrendously high operating costs per TKT compared to he A320 fleet b) the step change from 50 to 130 seats per operation means a reduction in frequencies until TKT catches up with TKO c) regional aiports require significant investment to support jet operations and d) sector lengths are frequently too short to support a profitable jet operation.

  2. I didn't suggest disclosing costs or prices, and would note that you seem to have confused complexity with transparency.

    Your comment should also have said *One of the reasons" that fares are high...

    I don't dispute that costs are higher, but you'd be very naive to believe that a monopolist carrier wouldn't take an extra chunk of cash when they can get away with it.