Air New Zealand sales boss on setting fares, the best time to get a bargain

Air New Zealand's Leanne Geraghty explains how the airline sets fares. Photos / File

After soaring by up to 30 per cent after the pandemic, air fares are falling across the board, Stats NZ figures show. In May, international fares fell 8.2% compared to the previous month and domestic fares are finally falling, down 7.9% month on month and down 0.7% on the year before. Air New Zealand has more than 80% of the domestic market. Chief of customer and sales Leanne Geraghty explains the airline’s pricing system.

How does Air NZ set its fares?

For domestic flights, we have several price points, or booking classes, on any route. For example, on an Auckland to Napier flight, prices range from $69 to $410 for a seat-only fare. Fares are allocated 12 months out, so if a customer books early, they’re much more likely to find a price at the lower end of that range. As more customers book, demand starts to be spread across fewer remaining seats and hence prices change. Simply put, it is a supply and demand-driven pricing system.

How does the pricing algorithm work?

At any given time, we have around 150,000 flights and millions of seats available for customers to book. To determine how much an airfare is, we start with what we need to cover our base costs of operations. Just like any business, we need to make a margin above our cost so we can reinvest in our business. Our ability to do that is driven by supply and demand - in other words, how many seats are available to buy, and how many people want to buy them. This is why we have more than one price point as we manage a relatively fixed number of seats with constant variations in demand.

Can people override the machines?

We are constantly monitoring demand, competition, costs, and what’s going on externally when it comes to setting pricing. An example of this is when we see demand surge because of an unforeseen event such as when Cyclone Gabrielle hit Hawke’s Bay in February 2023. Our teams significantly reduced the upper limit for fares on flights with available seats to support customers who needed to fly in and out of the region during this time.

When checking online why do prices change from day to day and when you check them on different devices?

Our pricing system doesn’t change for individual customers or devices. If you’re looking at flights on two different devices and two different prices show up, the most likely cause is that in the time it took to open our website store on the second device, a seat has been sold to another customer, so you’re now seeing the next available price point. That can also work in reverse where a cancelled booking can free up seats from one moment to the next and the price goes down.

What is the outlook for fares?

Like many Kiwis and businesses, Air New Zealand has faced increasing costs over the past few years. We’ve absorbed as much of this as we can but to reflect the higher cost of providing air services, we continually review our pricing. As always this is based on various factors including demand for the date, destination and time of flying, the type of aircraft, length of flight and the type of fare the customer is seeking. All the key economic indicators are pointing to the fact that New Zealanders are under financial pressure, and this flows through to how much they can spend and what they spend it on. Travel is no exception and if you look at the fares we are selling in the market, the most recent month (April) shows a 4% year-on-year decline in the actual average fare paid to fly within New Zealand. We’re conscious about the current environment and we’re very focused on trying to ensure there is always a broad range of airfare options. We know that what we set our fares at is one thing, and what a customer is prepared to pay is another. These two things in combination ultimately set the price of a seat at any given point in time.

Is there a best day or time of the day to book a fare if you want to get a bargain fare?

There’s no particular day when there’s a greater likelihood of cheap fares. Generally, the earlier you book ahead of when you wish to travel, the more likely you are to get the best-value fare. We do constantly review our fares based on how well a flight is selling, and if we see a flight where demand is weak, we may adjust the pricing. May and June tend to be quieter months to travel domestically relative to other times of the year like key holiday periods, so it’s often a good time to get a deal. Our advice is always to book early and if you have flexibility, target flight timings around the middle of the day and at the weekend.

What about standby fares?

We don’t offer standby fares to customers; however, we do offer Regional Gotta Go fares and compassionate fares for those who need to travel last minute. Conditions are outlined on our website for last-minute fare types.

How does the airline regard domestic competition?

New Zealand is one of the most open countries in the world for airlines – it’s an “open skies” country - and we don’t shy away from competition. Every route we fly in New Zealand is open for any other airline to fly. They’ll need to make the necessary investments in infrastructure and resources to operate the service and like us, a competitor is only likely to do that if they think they can turn the service into a viable business.

Grant Bradley has been working at the Herald since 1993. He is the Business Herald’s deputy editor and covers aviation and tourism.