Liam Dann 's Opinion

Liam Dann is the business editor of the NZ Herald

Liam Dann: Air NZ should be too smart to price gouge

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The withdrawal of Qantas from the Auckland-Los Angeles route is clearly not great news for flyers.

A monopoly is never good for consumers and the Qantas departure hands Air New Zealand an effective monopoly on the route.

But there are a couple of reasons why we shouldn't see Air New Zealand use this privileged position too aggressively.

One is that the airline is savvy when it comes to marketing and managing its brand. Any moves to price-gouge would be obvious and would attract a public backlash. That would weigh heavily against the short-term revenue gains - which would be marginal in the scheme of the airline's total earnings.

The other issue is that it remains vital for Air New Zealand to attract inbound US tourists to Auckland. The airline certainly doesn't have any kind of monopoly on the holiday intentions of Americans who could easily choose to go only as far as Australia or head for the increasingly cut-price destinations in Europe.

Also, other carriers including Qantas or Jetstar can still offer discount deals to budget travellers with the time and stamina to transit via Sydney.

No doubt the Qantas move is good news for Air New Zealand.

It most likely means fuller flights to the US and therefore fewer seats that need to be auctioned at discount rates.

But it shouldn't signal a new era of high fares for travellers.

Perhaps what makes the demise of the service more disturbing is that it strikes a raw nerve for Kiwis.

It plays on our fears, as a small island nation, of being left isolated.

The idea that flying to New Zealand is "not commercially viable" is a disturbing one. Tourism is one of our biggest earners, but there is also that lonely feeling of being left stranded in paradise.

A hangover from the colonial era perhaps, but even if we have no intention of going anywhere it is nice to know that we can ... and that we can afford to.

The fact that the move comes while Air New Zealand is being forced to review the frequency of its long-haul routes is a worry.

These are tough times for the aviation industry. Rising fuel prices have been putting pressure on costs for several years.

On top of that the global financial crisis has hit demand hard.

It is not just tourists looking at their travel spending but corporations looking at travel budgets - flying economy or staying put and using online video conferencing.

If anything Qantas' woes highlight how well Air New Zealand is holding up despite its own earnings squeeze and deflated share price.

When it comes to navigating this economic slump the difference between Air New Zealand and a lot of its competitors is that the national carrier was in very good shape when the financial crisis hit in 2008.

There's nothing like going to the brink of bankruptcy, as the airline did in 2001, to force you to get in shape.

After its near collapse and the government bailout Air New Zealand had to make many of the hard commercial decisions airlines like Qantas are making now.

So through a combination of good timing and good management Air New Zealand was in a strong cash position with a lean operation by 2008.

One of the things it did in those days before the global crisis was commit itself to buying Boeing's flash new 787 Dreamliners.

It is a great pity that after a series of production delays we are still waiting for the 787 to take to the skies.

Much smaller than a 747 (fewer than 300 seats compared with about 500) but with a longer range plus 20 per cent more fuel efficiency it is almost purpose built for the haul across the Pacific.

Jetstar - the Qantas-owned budget carrier - has purchased 15 787s. If they were available now the numbers around flying Auckland to Los Angeles might start to make sense.

Jetstar gets its 787-8s in August next year. Air New Zealand doesn't take ownership of its larger-capacity 787-9s until 2014.

Still with this turbulence behind them, the airlines should be better placed to offer more routes to and from New Zealand in the next few years.

More choice means more competition and hopefully cheaper prices for travellers.

There must be a temptation for Air New Zealand to make hay while the sun shines. But hiking prices is a lousy way to engender customer loyalty - something vital for an airline wanting to maintain a premium brand.

twitter.com/liamdann

- NZ Herald

Liam Dann

Liam Dann is the business editor of the NZ Herald

Liam Dann is the Business editor of the New Zealand Herald, overseeing all our business content in print and online. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy.

Read more by Liam Dann

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