Air New Zealand chief executive Christopher Luxon has defended the carrier’s pricing on regional routes and says fares on turboprop services will always be more expensive than jet-operated flights due to economies of scale.
Luxon says Air NZ has the best regional network in the world, citing independent research which shows all towns with populations of 20,000 or more in the country have scheduled air services.
This compares with just over half of all similar regional centres in Australia, Canada and Sweden, Luxon told shareholders at Air NZ’s annual general meeting in Christchurch on Tuesday.
“The same study showed that New Zealand boasts the cheapest like for like regional fares with Australia ranking second – albeit 29 per cent higher,” Luxon said in prepared remarks.
“However, regional airline economics are very challenging and regional turboprop airfares will sadly always be more expensive than jet airfares. This is because the smaller the aircraft, the higher the cost per seat which in turn drives our pricing.”
The topic of Air NZ’s pricing on regional routes was raised during the country’s recent election campaign, when a number of MPs and candidates criticised the carrier for its “horrendous” airfares.
NZ prime minister John Key reportedly spoke to the airline about its regional airfares in response to people raising the topic of the high ticket prices during the campaign.
Separately, the New Zealand Airports Association said the Commerce Commission should regulate airfares, according to media reports.
Luxon said strong financial results in recent years – in 2013/14 Air NZ posted a third-straight year of profit growth – were as a result of turning around the international business and not from the regional flying.
“In fact, profit from our regional network has declined over the last five years and our average regional airfare is down two per cent over the last five years,” Luxon said.
“One of my priorities this year has been to proactively engage with mayors, chambers of commerce, airport management and local business leaders to better understand the needs of regional New Zealand and how Air New Zealand can help develop their regional economies.”
Luxon drew parallels with a road trip from Christchurch to Invercargill, where the costs per person were “bound to be more expensive than say if you took a bus where around 50 people share the overheads”.
He said the airline was focused on upgauging aircraft on regional routes to lower costs per seat in a bid to put downwards pressure on ticket prices.