Air New Zealands regional Airline economics impact
As Air New Zealand’s regional affairs manager sees me spend a lot of time on the road visiting the 25 domestic destinations the Airline operates to no matter where I travel I find myself being asked similar questions one of the most common relates to perceived high fares for travel on regional services. While in Gisborne recently to speak with a range of business and community stakeholders I was questioned about the pricing of our Gisborne Wellington services compared with Gisborne Auckland services.
The reality is that the Aviation Industry is complex and we could probably do a better job of explaining the challenges faced in operating to regional New Zealand ports. With that in mind, I would like to take this opportunity to share a little of the presentation that I normally give as I am travelling around the country to help explain the realities of Airline Economics which, of course, drive the pricing of our fares.
A key Principle to remember is that, contrary to the belief of many of our customers, the general rule is the smaller the Aircraft the higher the cost per seat to operate, which in turn feeds through to Airfare pricing. This is because many of the operational costs for an Aircraft, other than fuel, are very similar no matter the Aircraft size. On a smaller Aircraft these costs are spread across fewer seats which requires us to charge higher Airfares. I like to use the bus versus car analogy it is more cost efficient to spread the costs of running a bus across 50 people than it is for a car which seats only five passengers.
Getting back to the cost difference between flying to Auckland versus Wellington, the Gisborne Auckland route is served by 50 seat Q300 Aircraft while the Gisborne Wellington route uses smaller 19 seat B1900 Beech Aircraft, hence the average fare to Wellington is more expensive than between Gisborne and Auckland.
The B1900 Beechcraft that is used on the Wellington service is the least cost efficient Aircraft in the Air New Zealand fleet and the operating costs have been rising rapidly as these Aircraft get closer to the end of their economic lives. Hence we are working to up gauge Beech routes to Q300 Aircraft and Q300 routes to 68 seat ATR Aircraft where local demand is able to support the extra seat capacity.
While that explains the rational behind pricing, the question in Gisborne is whether fares on the Wellington route might be able to come down.
Air New Zealand accepts there’s a need to address the issue of pricing so that demand is not unduly impacted by the price of fares. The answer lies in our ability to move to a larger Aircraft size within the limitations of our overall fleet management, and we envisage this might be able to happen within the next two to three years.
This would also require the Gisborne community to decide whether it is willing to accept a schedule that would offer fewer flights per day, but more seats per flight. It’s a trade off between seat capacity and schedule flexibility. Part of my role on behalf of Air New Zealand is to continue to work with the local council, Eastland Community Trust, the Gisborne Chamber of Commerce and other Gisborne stakeholders on these and other issues.
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