Air NZ defends regional fares, again

An Air New Zealand Eagle Air flight touches down at Onerahi airport. Photo / John Stone

Air New Zealand has again defended what the airline charges on its regional routes, saying profits are falling on its provincial network.

Fares to regional destinations attracted criticism following the airline's announcement of a bumper result last month.

Speaking at the company's annual meeting today chief executive Christopher Luxon said profit on its regional network had fallen during the past five years.

'Our improved performance has come from turning around our international business which is now profitable. In fact, profit from our regional network has declined over the last 5 years and our average regional airfare is down 2 per cent over the last 5 years," said Luxon.

He acknowledged "conversation" in the last few months about our pricing in the regions where the airline had what he described as the best regional network in the world.

"We would be the only airline in the world that flies a fleet that ranges from 19 seat to 332 seat aircraft. The reality is few airlines see the sense of servicing regional towns like we do and consider it uneconomic," he said in a speech prepared for delivery to shareholders in Christchurch.

New Zealand was well covered with all towns of 20,000-plus people with scheduled air services comparing to just over half of similar regional centres in countries such as Australia, Canada and Sweden.

"However, regional airline economics are very challenging and regional turbo-prop 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."

Luxon said the key was to expand markets to get them into larger aircraft to achieve lower costs per seat to keep a downward pressure on prices

The airline had spent close to $200 million refurbishing our existing ATRs and ordering nine new ones.

"Each region is different. Some markets have sufficient demand that can support the larger aircraft, some struggle and we have to adjust the schedule and frequency of services with the larger aircraft, and then some are so challenged that even at high prices we cannot cover our costs and we have to withdraw services like we have done in Wanaka and Masterton in the last year."

Luxon said one of his priorities this year had been to engage with mayors, chambers of commerce, airport management and local business leaders to better understand the needs of regional New Zealand and how the airline could help develop their regional economies."

Air New Zealand's profit climbed to $262 million in the year to June 30, prompting Prime Minister John Key to say he had spoken to Luxon about the issue of fares in "monopoly-type" positions.

Luxon said Tasman routes continued to perform well in spite of the lower Australian dollar impacting on revenue. Air New Zealand had a 25.99 per cent stake in Virgin Australia which had been hurt by capacity increases outstripping market demand in domestic Australia, although that airline had made inroads in gaining market share.

Luxon said long haul international network continues to go "from strength to strength."

After an extended period of limited growth and poor profitability, new aircraft deliveries were allowing it to grow capacity in markets where we see strong demand.

"We are now beginning to see material benefits of the simplification and modernisation of our fleet."