New era of cheaper airfares may be here for good

ANALYSIS: For the 15,000 travellers who picked up $9 regional airfares from Air New Zealand and Jetstar, the price impact of the Australian carrier's New Zealand domestic network expansion was immediate. But the good news is while the $9 airfares are clearly unsustainable for the long term, it is likely regional New Zealand will continue to see cheaper airfares than it has been used to.

Jetstar has added Nelson, Napier, Palmerston North and New Plymouth to its New Zealand domestic routes from Auckland, along with Wellington to Nelson. The first flights will take off in December.

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That puts immediate pressure on prices in those regions but also indirectly keeps the lid on what competitors can charge on other routes.

Take for example the Nelson to Christchurch route.  While Jetstar is not flying that route directly, a traveller can book through Jetstar to travel Nelson to Wellington to Christchurch.

The stopover is a nuisance but one that many travellers would put up with if they could get a much better deal. That in turn limits what Air New Zealand can charge for its route.

Airline prices were already coming down and the introduction of further competition means that will happen even more noticeably.

Fuel prices have dropped a lot over recent years and the airlines have upgraded their fleet to much more fuel efficient aircraft, which keeps their costs down.

Air New Zealand would probably have passed on some of those savings to passengers anyway, but Jetstar's regional expansion means they are compelled to pass on as much of the savings as possible.

How other regional centres not currently on the domestic network fare will be interesting to watch. While domestic airfares have come down already this year, this has not been evenly spread across the country.

Flights to Whangarei and Invercargill from the main centres are notoriously expensive.

If Air New Zealand does not drop its prices on these routes and offers fares that compete with those in the Jetstar routes, will it be accused of taking advantage?

It has made its own adjustments to its regional network over recent months and dropped destinations that it could not make profitable.

Industry commentators have said this was done sensitively and only in areas where another airport was available within an hour's drive.

Air New Zealand has also shared information such as load details with the smaller airlines who have stepped into its shoes.

The key to getting good flight deals on the regional network will be for Kiwi travellers to vote with their credit cards -  to choose a domestic flight over a car trip and expand domestic demand beyond business travel.

The more an aircraft is in the air, and the more seats it has filled, the lower the cost of running a service. If planes are empty or the services are infrequent, it will be hard to keep the price down.

Both airlines want to grow the domestic market to make their investments pay off.

New Zealand travellers are price sensitive and emotions run high in many regions about being connected to the national aviation network.

But the fact is that New Zealand is one of the best-served countries in the world for regional services per head of population, and Jetstar's arrival further enhances the links between the regions and the main centres.

 - Stuff