Air NZ profits as punters pay more

By NZPA

Monday 24th June 2002

Air New Zealand is benefiting "hugely" from the demise of competitors on its domestic routes, with some fares up by more than 20 percent on a year ago.

An analyst, whom The Evening Post agreed not to name, said there was no doubt Air New Zealand was making "very good profit margins".

"If you look at the old days before the demise of Qantas and Ansett, a round-trip Auckland to Wellington was about $460, now it is up to $560 and has been as high as $640," the analyst said.

"Therefore, in the short-term, they are definitely benefiting from the demise of competition. And if you look at the recent half-year result, it shows very good profit margins and really they're making all their money domestically."

He added that Qantas wasn't providing strong competition because it didn't serve enough destinations and had a shortage of planes in New Zealand.

"Qantas will become much more viable when they take delivery of two new 737s, one of which is due in July and the other in November," the analyst said.

Trans-Tasman airfares are also up to 20 percent more expensive than a year ago, but they're not deterring Kiwis from travelling with most Air New Zealand flights full. The cheapest airfare from Wellington to Sydney is $636, a 20-percent increase from $529 just over a year ago.

For those who don't book in advance, the increase has been more than 40 percent from about $1017 to $1456 today.

Air New Zealand said today its last increases were in January when mid-range and one-way domestic fares went up 5 percent and economy-class trans-Tasman fares increased across the board.

However, a UBS Warburg brokers' report out last week suggests Air New Zealand's domestic airfares could fall after the launch of its cut-price tea-and-biscuit service on October 27.

"We suspect that the average 22-percent difference between low-cost subsidiary Freedom Air and Air New Zealand's mainline product provides the best guide.

"Cost reductions -- such as elimination of commissions paid to travel agents -- and incentives for online booking should force costs down," the report said.

One area where costs will go up is in landing charges at Wellington International Airport Limited (Wial), which today announced a 10 percent hike in fees from Monday for major customers (Air New Zealand and Qantas) and from August 1 for smaller airlines operating at Wellington Airport.

Infratil, the two thirds owner of the airport said today the interim increase had been agreed with the major airlines.

Consultation over the final level of charges was continuing between Wial and the major airline customers (including the Board of Airline Representatives) as prescribed in the Airport Authorities Act.

Air New Zealand and Qantas are sileny about whether they will pass on the new charges to travellers.

For Air NZ, the increase is likely to cost it several million dollars because it is the airport's biggest airline user and contributor to the airport's $24 million a year in "aeronautical" revenue.

Wial is aiming to increase aeronautical revenue to about $40 million a year, from $24 million now.

Wellington's airport charges had been fixed for five years but domestic airfares had risen 43 percent in that time, Infratil executive Tim Brown said earlier this month.

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