Brace for more airfare hikes, says expert

Air New Zealand customers should brace for more airfare rises, an aviation expert says.

As of yesterday, the national carrier’s domestic airfares have increased in price by 5 per cent.

The airline said it was ‘‘unable to continue to absorb’’ operational cost pressures from fuel, labour and goods and services.

Centre for Aviation executive chairman Peter Harbison said if jet fuel prices remained high then Air New Zealand customers could expect more fare increases. Jet fuel prices were up more than 50 per cent on this time last year, he said.

‘‘Also, as the dominant airline, they are well placed to increase fares without fear of a lot of diversion – or even of traffic reduction,’’ Harbison said.

There could be further airfare increases if the US dollar continued to strengthen, he said.

The New Zealand dollar has fallen about 5 cents against the greenback this year to trade at about US69c. A weakening New Zealand dollar makes it more expensive to buy fuel.

Forsyth Barr head of research Andy Bowley said it was possible Air New Zealand had raised airfares in the past without the market noticing. ‘‘Air New Zealand makes pricing decisions continuously in order to optimise revenue,’’ he said.

It tried to balance filling aircraft with maximising revenue per passenger, he said.

Yesterday’s 5 per cent increase reflected a ‘‘step change’’ to its pricing architecture. ‘‘These kind of changes are less common.’’

With about 80 per cent market share domestically, Air New Zealand had pricing power and could lead the market with price increases, he said. ‘‘Further changes to airfares will be a function of Jetstar’s competitive response, oil price movements and the demand backdrop.’’

FCM Travel Solutions general manager Andy Jack said the airfare increases could spill over into Pacific island routes.

Other international routes were unlikely to be affected because competition kept pricing consistent.

A 5 per cent hike would not affect leisure customers’ spending habits but it might affect business travel, he said.

DAVID ALEXANDER/STUFF Air New Zealand has 26 ATR aircraft, with 12 more on order. They are key to its domestic operation.