Editorial: Cheap airfares for your next holiday? Travel costs still a complex mix

Airlines and their passengers face cloudy skies this year. Photo / Grant Bradley

Editorial

Those back at work and facing up to a hard year ahead have been advised by experts to book another holiday to help ease the strain.

Anyone doing this will look carefully at travel costs, especially if they are flying. The outlook is mixed.

Although airfares look set to continue their fall as travel demand softens, there are complications.

Stats NZ figures show that although international air travel prices in December spiked compared to the previous month as peak prices hit travellers, over the past 12 months international air transport was 15.2 per cent cheaper.

Domestic air travel was up 6.9 per cent compared to November 2023 but only up 0.2 per cent compared to a year earlier.

This retreat in the price of international airfares is likely to continue, to a point.

Air New Zealand’s promotional fares over the past week for limited numbers of tickets resemble some prices seen during the “golden age of travel” before the pandemic wiped it out four years ago. But they’re far above the $69 one-way tickets between New Zealand and Australia the airline offered as travel collapsed in March, 2020.

The airline enjoyed market dominance across the Pacific during and immediately after pandemic border closures but this has now gone, with US carriers piling capacity into the market.

This has resulted in something of a price tussle, rather than a knockdown drag-out fight, between this country and the US.

Across the Tasman, standard fares remain elevated. The withdrawal of Air AsiaX services next month will take some of the downward pressure off prices even though it flew only three times a week.

Virgin Australia shows no sign of returning to the main-centre routes on both sides of the Tasman and changing the pricing fundamentals of that route.

Around the world, airlines face a turbulent year.

A study by America Express Global Business Travel finds that supply and demand are finding equilibrium as airlines add more seats and there is a softening in leisure demand, so-called “revenge travel” that drove record or near-record profits.

It found that high interest rates were starting to bite on consumers. In this country, Air New Zealand has twice noted that demand among its corporate and government customers had weakened.

That should result in better domestic deals for customers as normally prices would drop to stimulate the market. But Air New Zealand, the dominant domestic carrier with 80 per cent of the market, will be forced to cut capacity this year and beyond.

Engine maintenance issues affecting the global fleet of Whitney-powered planes will ground up to five of the planes at any time. This means some smaller aircraft will be redeployed from regional routes where capacity is already tight and fares are high at peak times.

All airlines face other pressures. Since June last year, oil and jet fuel prices have been edging up. Airlines have made progress rebuilding pandemic-ravaged balance sheets during the past year but continue to face a big debt burden, in the current interest rate environment. Wage bills have soared and now airlines face aircraft delivery delays.

Airbus and Boeing have warned that sector-wide supply chain issues are likely to continue throughout 2024, hampering the production of new planes.

Amex says this could frustrate network expansion plans or delay the delivery of efficient, lower-emission aircraft.