Air NZ domestic growth slows

Momentum for cheap airfares could fizzle out in the coming months, one economist is warning.

Air NZ’s latest investor update shows that overall it carried 2.2 per cent more passengers in August this year than last.

But while long-haul passenger numbers were up 5.4 per cent, and passenger numbers to Asia, Japan and Singapore were up 14.3 per cent, domestic passenger numbers increased only 0.6 per cent and the number of kilometres they travelled fell. Economist Benje Patterson said growth in the domestic market was starting to slow for the airline as economic conditions deteriorated and international tourism flattened off.

‘‘The most interesting thing about Air NZ’s August result for the domestic market were signs that main trunk routes are beginning to struggle, while regional flight demand is picking up,’’ Patterson said.

‘‘Evidence of this trend is that passenger numbers rose slightly during August, while passenger kilometres fell. In other words, more people flew but they were flying on shorter regional flights, rather than the longer jet services.

‘‘Jet service demand will have been most affected by a tapering of business confidence and fewer international visitors moving about. The regional services will have been shored up, not because underlying household confidence is strong, but rather because of Air NZ’s recent price cuts to regional airfares.’’ But he said those price cuts might not last.

‘‘Given signs of underlying weakness in the economy, the momentum from these price cuts is likely to fizzle out in the months ahead. Recent events in Saudi Arabia may cause sleepless nights for Air NZ management as any upward pressure on jet fuel prices will undermine efforts to keep ticket prices low.’’

Brent Thomas, commercial planning director at House of Travel, said low fares would continue on routes that had competition. If one airline had hedged a significant proportion of its fuel cost and could maintain cheap prices despite rising oil prices, others would be forced to match it.

Air NZ was well positioned because it had invested in new, more efficient aircraft, and would continue to do so. Thomas said New Zealand was fortunate it had a large number of airlines serving it despite a small population.

A spokeswoman for Air NZ said domestic demand was stable.

‘‘Specifically for August we saw good demand for domestic travel.’’

‘‘More people flew but they were flying on shorter regional flights.’’ Economist Benje Patterson