Airlines had faced big fee increases, the Commission said, and these had to be recouped from passengers through fares.
The Commission showed little appetite to get involved there, saying regulatory fee settings were a matter for government.
The Commission said Air New Zealand only faced competition on a few routes.
Jetstar competed on routes involving flights between Auckland, Wellington, Christchurch and Queenstown.
Aside from Jetstar, some smaller airlines competed on a few regional routes.
“Beyond that, routes are exclusively served by Air NZ or a small regional airline.”
The Commission said regional flights were expensive for airlines, with short routes and low demand compared to more populous countries.
Short flights used disproportionately more fuel, because take-off and climbing burnt more fuel than cruising or descending.
“The cost of fuel represents around one-third of Air NZ’s operating costs.”
That was a factor largely beyond the airline’s control.
The Commission said planes spent much time on the ground, and smaller aircraft had a higher cost per seat per kilometre, with fewer passengers to spread the costs across.
Jets were more fuel-efficient but there was insufficient demand in the regions to justify jet services.
Air NZ’s information advantage
One area the Commission favoured looking at related to information big airlines had.
“Incumbents hold granular data about demand, capacity, airfares and travel.”
Access to information such as route-specific demand and capacity levels could potentially help providers to service new routes or enhance capacity and reduce Air NZ’s information advantages.
If incumbents deployed some aggressive strategies to keep newcomers out, there was not much regulators could do.
Cross-subsidisation, major discounts, advertising blitzes and new low-cost offerings could all be deployed without usually breaching the Commerce Act.
But the law did forbid firms from engaging in conduct that damaged competition by restricting or undermining rivals’ ability to compete.
Such behaviour might include agreements with airports to restrict rivals from accessing terminal gates, stands, take-off and landing slots, and check-in facilities.
Other illegal behaviour could include predatory pricing, or increasing capacity on routes to prevent rivals from winning sufficient passengers to meet costs.
Flyers complaining
The Commission encouraged airlines to be more proactive in informing customers about their rights in respect of service cancellations.
And it sent a warning.
“We will continue to monitor the domestic air travel sector closely. If we see activity that breaches the laws we enforce, we will not hesitate to act.”
Commerce Commission chair Dr John Small has said prior market studies examined groceries, fuel, building supplies, and personal banking services.
Competition studies aimed to see how well competition worked and whether it could be improved.
The Commission said it received many consumer complaints about domestic air travel.
“Airlines’ handling of refunds and cancellations are a common theme in these complaints,” it said.
The Commission urged airlines to provide clear information to consumers about refund and cancellation rights.
It said this information should be conveyed online, on tickets and directly to consumers when travel plans were disrupted.
Global challenges
The Commission said excess capacity because of Covid-era disruption, Russia‘s war on Ukraine, and challenges finding staff and sourcing parts were worldwide challenges for aviation.
Global engine maintenance issues had keenly impacted Air NZ.
“There are also additional challenges of providing services around a long geographical market with many regions having low levels of demand.”
The Commission examined if industry newcomers faced too many barriers.
It said some major barriers to entry and expansion seemed related to high airline operating costs.
“For routes where no competition currently exists, we have been told that the most immediate challenge is maintaining current services,” the findings added.
“We have been told that many of these routes are of marginal economic viability and that competition on these routes is not realistic at this time.”
Apart from Government support such as loans or subsidies, there were few options for overcoming these barriers in the regions, the watchdog said.
But relevant ministers might want to discuss the possible merits of subsidising regional routes, the Commission added.
Economies of scale
It said Air NZ did benefit from economies of scale.
“It can spread its overhead costs over larger numbers of fares. Smaller regional providers need to recoup their overheads from a smaller number of ticket sales.”
There might be scope for different airlines to co-operate on access to airport infrastructure, loyalty schemes, marketing, and shared booking sites, the Commission said.
But it said low passenger numbers on most regional routes limited potential for economies of scale.
The Commission said access to airport facilities and services at airports might favour incumbents.
“It is possible that imposing equal access obligations for airport facilities and services could support competition at the margins.”
But it wasn’t even clear if access to such services was seriously impacting competition.
The Commission said Air NZ had strong brand recognition and loyalty. That posed challenges for potential rivals.
“There is limited scope for intervention to alter this.”
The Commission mulled whether better use of code-share agreements could improve competition.
But such arrangements were bilateral arrangements involving private businesses, and it was not clear how public agencies could intervene in that arena.
Consumer NZ: Market is broken
Consumer NZ said the aviation market was “broken” and a market study was long overdue.
It called on Minister of Commerce and Consumer Affairs Scott Simpson to take action.
“Air NZ’s majority shareholder is our Government, and both should be accountable to the public.”
Consumer NZ said its sentiment tracker showed 44% of people were flying less frequently due to high domestic airfares and about 25% were using alternative travel modes such as a car or bus.
Consumer NZ chief executive Jon Duffy told the Herald he was closely watching the situation.
“We are concerned that the current status quo is unsustainable, especially as more and more regional New Zealanders are finding it difficult to travel due to high prices and lack of competition.”
John Weekes is a business journalist covering aviation. He has previously covered consumer affairs, crime, politics and court.
