Lower fuel cost a global tax break: Luxon

Christopher Luxon says Air New Zealand's new direct service to Buenos Aires is the airline's 28th international port. Photo / Dean Purcell

Price drop will stimulate demand but fall in Kiwi dollar mutes benefit to Air NZ.

Air New Zealand chief executive Christopher Luxon expects low oil prices to stimulate demand for travel but for their beneficial effect on the airline's fuel bill to be muted by the fall in the New Zealand dollar, which has dropped in value by US11c this year.

US crude prices traded at US$60 a barrel for the first time in five-and-a-half years this week and Luxon said the low oil price environment was still new to the airline.

"Low fuel prices are good for demand because it is essentially like a tax break across the world, encouraging people to spend more on travel and tourism, which is fantastic," he said at a function held to announce the company's new service to Argentina.

The foreign exchange effect, and the impact of the company's fuel hedging policy, tended to have a "swings and roundabouts" effect on costs.

"But it helps more on the demand side," Luxon said.

Air New Zealand yesterday announced that it will be flying direct to Buenos Aires from December next year, subject to regulatory approvals, in what will be its first foray into South America.

An Air New Zealand Boeing 777-200 aircraft will operate three return services a week on the 12-hour route all year round.

Luxon said the new destination would be the NZX-listed airline's 28th international port.

"Buenos Aires is the most popular tourist city in South America and is a perfect stepping stone for those who then want to explore the country, or continent, further."

Air NZ's flights to Singapore would start next month and the new route to Buenos Aires further strengthened the airline's network in the Pacific Rim, he said.

The service will also enable Argentineans to travel directly to New Zealand and then on to Australia or to Singapore and Southeast Asia.

Air New Zealand will enter into a code share agreement with Argentina's flag carrier, Aerolineas Argentinas which will see Aerolineas Argentinas returning to the South Pacific market on the new route and on key connecting Transtasman services, and Air New Zealand will code share on Aerolineas Argentinas' services to Brazil.

Luxon said Argentina's inclusion in the Investec Rugby Championship had helped form "green shoots" for tourism flows between the countries.