Air fares which hit historic lows pre-pandemic now threaten to go up. Photo / AP
Airlines warn their bumpy recovery from a"crisis of apocalyptic proportions" is threatened by charges increased charges from suppliers and here passengers are warned this could push up airfares.
Air New Zealand says increased airport, air navigation service and border charges were on the horizon at a time when fuel prices have recently touched seven-year highs.
New Covid testing requirements could add hundreds of dollars to international flights.
In this country the Customs Service and the Ministry for Primary Industries are significantly increasing the border processing levy on December 1.
It will increase from $20.11 to $43.73 per airline passenger return trip, and from $21.06 to $36.72 per cruise passenger.
Air New Zealand chief executive Greg Foran said fuel prices were spiralling too, especially painful for the airline as its flying is limited due to the prolonged lockdown in Auckland where most of its domestic flights pass through.
Jet fuel prices early this month were US$89 a barrel, up 121 per cent on a year ago.
"It's a significant percentage of anyone's ticket," said Foran.
"That wasn't something that we thought we were going to see even a few months ago."
Airport and other aviation services were looking to recoup heavy losses they had suffered during the pandemic and as monopoly businesses were putting the heat on airlines.
Auckland Airport in the past year made a loss for the first time since listing in 1998 and monopoly provider of air traffic control, Airways, last week reported an underlying loss of $29.6 million, before the net impact of impairment reversals. It's capital spend slumped to $19m from a pre-Covid budget of $73m — a sign that when that spending does resume customers will have to pay for it.
"You don't want to create headwinds against an industry which is climbing out of the most significant crisis," said Foran.
During last week's International Air Transport Association annual meeting it was revealed in the two years between 2020 and 2022 its 290 members would lose more than $US200 billion ($287b).
Its director general Willie Walsh is sounding the alarm.
Planned increases in charges by airports and air navigation service providers ANSPs have already reached $US2.3 billion. Further increases could be tenfold this number if proposals already tabled by airports and ANSPs are granted.
"A $2.3 billion charges increase during this crisis is outrageous," said Walsh.
"We all want to put Covid-19 behind us. But placing the financial burden of a crisis of apocalyptic proportions on the backs of your customers, just because you can, is a commercial strategy that only a monopoly could dream up." At an absolute minimum, cost reduction — not charges increases — must be top of the agenda for every airport and ANSP.
Collectively, ANSPs of the 29 Eurocontrol states, the majority of which are state owned, are looking to recoup almost $US9.3 billion from airlines to cover revenues not realised in 2020/2021.
"They want to do this to recover the revenue and profits they missed when airlines were unable to fly during the pandemic. Moreover, they want to do this in addition to a 40 per cent increase planned for 2022 alone.
Other examples include: Heathrow Airport pushing to increase charges over 90 per cent in 2022 Amsterdam Schiphol Airport requesting to increase charges over 40 per cent over the next three years Airports Company South Africa (ACSA) asking to increase charges 38% in 2022 NavCanada increasing charges 30 per cent over five years.
The rapidly climbing oil price and increased supplier charges are steeper than usual and Foran warns of another as international travel resumes — Covid tests.
Air New Zealand will require all international travellers to be vaccinated (unless there are medical reasons) as it returns to international flying to most pre-Covid destinations but pre-flight and arrival Covid testing regimes have yet to be established.
Foran said that Qantas chief executive Alan Joyce had calculated that Covid tests could add up to between $1600 and $3200 for a family of four on an international flight.
In New Zealand the border reopening project was looking at this and Foran said Air NZ was in discussions with the Government about who would pay.
"We're working with border agencies on that but exactly how that works and how the costs work are still very much in discussion."
Air New Zealand during the pandemic has introduced fare caps on domestic flights and recently announced flexibility and cut the cost of adding a bag at the airport..
It is 52 per cent owned by a Government which has made available a $1.5b standby loan and exerting closer oversight of the airline which it expects to make it easy as possible to connect Kiwis domestically and when the time's right, the world.
Air New Zealand may well find itself in a stronger competitive position next year if some of its pre-pandemic rivals don't return or make available only limited capacity as they chase more lucrative, less risky markets elsewhere.
Foran knows there will be a continued focus on fares, especially if they leap up due to high demand for and short supply of seats.
"We have been incredibly conscious through all this not to do that. Whether it be domestic or international and we will quickly implement fare caps to do what's right for our customers," he told the Herald.
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But there was only so much airlines could do.
"I can't sit here and tell you this the price of oil continues to go up from $85 to $100 that we're not going to have to take some action because we will and there are the market dynamics in play," he said.
The highly cyclical airline business would mean there would be only temporary respite from the competition.
"If you do get a period of time where the competition's move north, take it. But you have to get ready for the next sideswipe because it'll be coming back at a point in time."'
Foran says the strong partnerships Air New Zealand has with other airlines will be as important as ever as flying recovers and this weekend one of them, Singapore Airlines announced more expansion of its network.
Singapore Airlines, without a domestic network, has been badly hit but as that highly vaccinated country moves to a ''live with Covid'' state, it is opening up quickly. It said it will expand its quarantine-free Vaccinated Travel Lane (VTL) network to 14 cities, with additional points expected to be announced in the coming weeks.
This comes as Singapore widened its VTL arrangements to include Canada, Denmark, France, Italy, the Netherlands, South Korea, Spain, the United Kingdom, and the US These are on top of the existing VTL arrangements with Brunei and Germany, which began in September 2021.
Singapore Airlines will operate VTL services from Amsterdam, Barcelona, Copenhagen, London, Los Angeles, Milan, New York, Paris, and Rome starting October 19. The airline's services from Seoul will begin on November 16.
Foran said Air New Zealand hopes to restore more passenger services into the United States, Japan and Australia as early as possible next year with its long awaited Auckland-New York flight on track for take off as early as mid-year.
Qantas - a domestic code share partner for Air NZ - has changed the routing of its flagship direct route from Australia to London via Darwin when international its flights resume next month with the reopening of Australia's border.
The national carrier has reached an agreement with the Northern Territory Government and Darwin Airport to temporarily reroute its flights from Melbourne and Sydney through Darwin.
The Darwin hub arrangement will be in place in time for borders reopening from November 14 until at least April 2022 when London flights are scheduled to operate via Perth again.
While this is a temporary change to the route, Qantas will watch how it performs and is ''open-minded'' about what it could lead to down the track.
With the reopening of borders in Australia, Qantas will also bring forward the restart three weekly return flights between Sydney and Los Angeles with its Boeing 787-9 Dreamliners.
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