Air NZ 'just the first' to lift fares

Air New Zealand is increasing all its fares by 10pc as of May 1.

Rival airlines are expected to follow Air New Zealand's decision to raise fares, aviation experts predict.

An annual fuel bill that has doubled to $1 billion in the past two years has prompted Air New Zealand to increase all its fares by 10 per cent as of May 1.

"You can expect that many other airlines will now follow," said Macquarie Bank aviation analyst Paul Huxford. "This is not unexpected given the magnitude of the rise in the jet fuel price."

Qantas said on Monday that it was reviewing its fuel surcharges. British Airways has also said it will raise its surcharge on long-haul tickets sold in Australia and New Zealand.

Flight Centre general manager Jeremy van der Klundert said the rises "may create a domino effect".

Air New Zealand chief financial officer Rob McDonald said he regretted the move but the numbers were "stark".

The situation in Iran and Iraq and other issues such as conflict in Nigeria had caused oil prices to soar to record highs.

That, combined with a falling New Zealand dollar, made a significant rise unavoidable, he said.

The airline said it could not rule out further increases if jet fuel continued to soar.

"Until some of the geopolitical issues are resolved in a positive way it is difficult to get optimistic," Mr McDonald said.

Asked if prices might fall in future, he said: "The prices can come down again. But having said that, it will take a reasonably dramatic turnaround because we are not covering the full impact. But if the price comes down dramatically then the fares could come down."

The price for a barrel of the benchmark Singapore jet fuel was US$40 in April 2004 compared with US$89 a barrel today.

Fuel is now the airline's number one cost.

"The whole industry has got this issue so everyone is going to have to address it at a point in time," Mr McDonald said.

Qantas was not commenting on the move yesterday other than to reiterate that its prices were under review.

This is the second time Air New Zealand has raised its fares in the past 12 months.

Last August it raised its fuel surcharge on domestic fares which effectively lifted prices by 4.5 per cent.

Yesterday's announcement applies to domestic and international fares - although it is being applied to base fares only, not to the fuel surcharge. It is also being applied to the pre-GST price only. This means travellers will face a net increase of about 9 per cent on most tickets.

If the full impact of the fuel cost had been passed to travellers the rise could have been as much as 25 per cent, Mr McDonald said.

But the company was aware that passing on the cost would have a severe impact on demand.

"That is the challenge, but we can't do nothing."

Air New Zealand has already warned its profits for 2006 will be well down on the year before.

Travel agents described the rise as disappointing but inevitable.

It was "still hard to swallow", said Flight Centre's Mr van der Klundert.

One positive was the announcement that the fuel surcharge would be merged back into one single price by May 15, said House of Travel retail director Brent Thomas.

"That's good from a consumer's point of view and we'd like to see all the airlines do it."

He was optimistic the rise would not result in a major fall in the number of travellers.

The airfare was generally just one component of a big international holiday.

"So we may find people will go to Europe for 16 days instead of 17 days and that will be the price difference of the airfare."

He was also expecting a surge in business as people rushed to book before May 1.

It was important to remember that a ticket to Britain was still about the same price as it was 10 years ago, he said.

In relative terms that was significantly cheaper.

Plans by Air New Zealand to code-share with Qantas on the transtasman route were in no way related to the price rise, Mr McDonald said.