Are airfares really getting cheaper?

THREE KEY FACTS
By Susan Edmunds of RNZ
Airfares might be falling but it could take a long time for them to get back to pre-pandemic levels, experts say.
Air New Zealand chief executive Greg Foran told RNZ in August that fare prices on average were down and were driven by supply and demand.
Stats NZ data backs that up – but while prices are down 23% on average from the peak for international airfares, and 13% for domestic, they are still up more than 50% from their lowest point, just before Covid hit.
Aviation expert Irene King said it was still likely that the long-term trend for airfares would be down.
“What we are seeing is some short-term aberrations and hangover from all the supply chain disruption… remember we are operating in a market where 25% of the aircraft capacity is basically parked on the ground at the moment. As soon as that starts to come back, airfares will start to drop again.”
King said airlines were facing some “really significant” cost pressures.
Fares also reflected how often customers were flying, she said, and people were flying less at the moment.
“Capacity is constrained because of the dreadful engineering problems we have but as soon as the market starts to stabilise – it doesn’t look as though it will stabilise until 2026 or 2027 – then we will start to see normalisation of the trend of airfare prices, which for the last 40 years has been down.
King said New Zealand’s geography and small population made it hard for domestic competition to be sustained.
But Vanessa Pratley, at Consumer NZ, said New Zealand had the “least competitive” domestic airfare internationally and it needed attention.
“The nex-closest is Bolivia. We really pale in comparison to overseas.”
Consumer wanted to see a market study, as has been done by the Commerce Commission into sectors such as banking, to look at how competitive aviation was, Pratley said.
“I really don’t think the pricing models at Jetstar or Air New Zealand are as transparent as they could be.”
House of Travel chief executive David Coombes said international airfares had come down more quickly than domestic.
“There are a lot of drivers of airfare prices, increased operating costs and inflation-driven increases in fuel prices. What we tend to see, generally speaking, is that the biggest impact is capacity, it drives the supply and demand equation.”
Coombes said airlines had to compete for passengers more aggressively in the international market.
Airfares should get back to pre-pandemic levels on an inflation-adjusted basis eventually, he said.
“It’s taking longer than it might have in previous shocks but there are some really good indicators. We are seeing European early-bird fares back in the market now for the first time in five years, really.”
Coombes said Jetstar’s move to fly to Coolangatta in Australia from Hamilton was positive.
“It will increase capacity – any customer that might have flown from Auckland and now flies from Hamilton frees up a seat in Auckland to add capacity, it’s good for the region, good for customers who can travel more efficiently and should mean there is downward pressure on prices.”
King agreed it was a positive step that would inject confidence into the market, but would boost New Zealanders travelling internationally rather than people coming into New Zealand.
“If you’re looking from [a] macro-economic perspective, that’s a drain on the New Zealand economy, you fly a foreign carrier to a foreign destination to spend money that would otherwise be spent in New Zealand.
“These are not renowned exit points for Australia – the only Australian traffic that moves out of Coolangatta is New Zealanders returning home to visit friends and family and they don’t spend a lot of money. So it’s great for New Zealand and shows confidence but for the New Zealand economy in general, it is a negative.”
Air New Zealand said it had been saying for some time that fares would not return to pre-Covid levels.
– RNZ