New Zealand’s low population density contributes to high regional airfare costs due to fixed expenses.
The Commerce Commission decided against a market study on airfares, citing limited impact on prices.
High costs are driven by fuel, airport charges, and fewer passengers to spread expenses.
New Zealand’s tiny population is both a blessing and a curse.
Some 80% of our land mass is uninhabited and our population density of 20 per sq km is among the lowest in the world. We’re bigger than theUnited Kingdom, with a population 13 times smaller. We enjoy mostly empty coastlines and bushland, even close to our major centres. So sparsely populated is our beautiful paradise that bumping into another human is enough to give you a fright.
Tourists love it. We, mostly, love it. The great outdoors is ours to enjoy peacefully with the birds and the bees.
One of New Zealand's most popular outdoor spots, Aoraki / Mount Cook National Park offers stunning hikes, glacier views, and alpine adventures. Photo / Getty Images
This curse was highlighted by the Commerce Commission’s decision not to self-initiate a market study into regional airfares, despite weeks of heated discussion and media pressure over Air New Zealand’s expensive regional flights. After looking into the domestic market in February and March, the commission decided, on balance, a market study is unlikely to result in cheaper prices for consumers.
The problem is not one of competition but simple economics. On the super-pricey regional routes that generate the bulk of headlines, the commission wrote that even if we had more airlines operating it probably wouldn’t make much of a difference. Fixed costs are fixed costs.
High airfares persist in New Zealand because of our low population density, the Commerce Commission says.
These short flights are expensive to run here compared to more populated countries. They burn more fuel as a proportion of total flight time because take-off and climbing is when you really chew through it.
The cost of fuel is a third of Air New Zealand’s operating costs, something CEO Greg Foran obviously can’t control. That’s more the purview of a Putin or a Sultan. Aircraft spend too long sitting on the ground, costs are higher, and you’ve got fewer passengers to spread those costs across. Using jet aircraft would be more efficient but, again, we don’t have the people to fill them.
The commission confirms prices have gone up across all routes but so have costs including fuel, airport charges and security.
I don’t want to defend an airline charging me $400 to fly for 40 minutes any more than the next guy, but we have to stop and ask whether we’re being entirely reasonable in demanding cheap flights and profit from the national carrier we half own.
Everyone compares us to the Australians but have a look at outback Queensland. Another beautiful but empty landscape. You pay thousands just to get to Brisbane. Show me a headline about flights being cheaper from Dunedin to Bali than Dunedin to Auckland and I’ll show you one about Mount Isa to Brisbane and Mount Isa to Canada.
Even if we did have a domestic airfare study, an easy itch to scratch for politicians, would it materially change anything for us consumers?
Recent history tells us no. Ask your average punter if market studies and regulations covering banks, supermarkets and petrol stations have changed their lives and purchasing power. The truth is they haven’t and public faith in them is at a low ebb.
What annoys me more than paying through the nose for flights and groceries is politicians pretending they can whip up a market study and whallah! Problem solved. It’s false advertising. They’re the ones who should be investigated by the Commerce Commission, surely!
At least there’s plenty of room in this great country of ours to avoid them. Unfortunately the same can’t be said of high prices.
NZ Herald football reporter Michael Burgess reports from Melbourne to look ahead to the first leg of the A-League semi-final between Auckland FC and Melbourne Victory.
