Sunair looks at abandoned Air NZ routes, blames airports for high fares

Monday 17th November 2014

Airport charges are a big part of the reason for high regional airfares, says Dan Power, the chief executive of regional airline Sunair Aviation, which is looking to pick up Air New Zealand's abandoned routes.

The Tauranga based airline is looking to start flights to Kaitaia and Whakatane, after the national carrier flagged it will end operations from the regional airports next year, citing lack of patronage and high costs. Sunair has been operating for the past two decades, offering regular twice or more daily flights on its 15 plane fleet between regional North Island hubs like Hamilton, Gisborne, Rotorua, Whitianga and Napier.

"Air New Zealand is very strong in the regional market and it's a very good operator and quite a formidable competitor, should you want to make it one," Power told BusinessDesk. "Due to its strength in the market place, certainly Sunair would not want to compete with Air New Zealand.

"For us to take on routes being exited by Air New Zealand in the North Island is not difficult for us," he said.

Most travellers on Sunair are businesspeople flying between regional centres, which would be the kind of service Sunair would operate for Kaitaia and Whakatane. Sunair hasn't begun formal negotiations with Kaitaia or Whakatane airport, which are both owned by the local councils, but said airports had a role to play if they wanted to keep regional routes.

"I think small airport owners, which are usually the councils, have to start treating airports as amenties to their communities as they used to, and maybe step back from trying to make them a revenue earning part of the council, because it is just not working," Power said. "As the airports get less operators they charge more and more to the remaining ones and its just a never ending spiral to oblivion."

The regional airline saw opportunity where Air New Zealand saw losses, Power said. The national carrier announced earlier this month it was ditching seven regional routes, as the cost of maintaining its 19 seat aircraft fleet has cost more than $1 million a month over the past two years.

Airlines pay service charges to the state owned air controller Airways Corp, as well as landing fees to airports. Airports have an interest in keeping airfares low to boost traveller numbers. In August, the New Zealand Airports Association called on the Commerce Commission to regulate Air New Zealand's regional fares on routes where the national carrier had an effective monopoly, after it announced a 45 percent uplift in annual profit to $262 million, its third consecutive year of earnings growth. That was before the national carrier announced it was dropping some unprofitable regional routes.

"The reason why, in part, Air New Zealand and other operators are beginning to really struggle with thin routes in New Zealand is simply because of the rising cost of infrastructure placed on this industry. We've seen 50 percent increases in airport charges in the last two years," Power said. "These really high costs of using airports and Airways is what's making it difficult for Air New Zealand and ourselves. People often say 'why are regional airfares so expensive?' well that's why: because our costs are so high dealing with the Airways Corporation and the airport companies."

Airports themselves are regulated by the anti-trust regulator, as they're considered to have an effective monopoly and are required to disclose financial statements and business plans, as well as keeping returns under 8 percent to limit excessive profits.

BusinessDesk.co.nz

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