Friday, January 19, 2007

Fly more domestically

So Air NZ is slashing domestic fares by up to 26%. It is like another leap downwards from when it dropped all frills with "Express Class" a few years ago. Most people will cheer, but I am sure around 5% will bemoan that this will mean more global warming - though few of those will stop flying because it "isn't convenient" and no doubt their flights are terribly important.
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Air NZ is engaging in a two pronged strategy:
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1. Stimulating a next level growth in air travel, to grow the business. It already has quite a profitable operation domestically, but there are economies of scale to exploit and its own research has indicated that people would fly more often if it was cheaper. Some people still drive long distances and this is designed to get them to fly instead, but more importantly people can take MORE trips more often. The flow on effects to the business sector are considerable too - this is called a positive externality.
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2. Warn away further competition. Qantas's dropping of Wellington-Christchurch and the collapse of Origin Pacific Airways have helped Air NZ a great deal. This also is about showing to Pacific/Virgin Blue that the NZ domestic market is not easy pickings, and helps to emphasise Qantas keeping a relatively small scale operation on the two routes it operates.
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"but what about emissions" I hear in the background, as the Greens clamour for a bill to freeze the amount of aviation emissions, I am sure they will support this as long as there are no more flights. However, there WILL be more flights. That is not a bad thing either. More flights mean businesspeople can do more business, trade more and there is more room for time sensitive domestic air cargo. It also has major social benefits, with families and friends being able to meet more often. These are not social benefits paid for by taxpayers, but by those buying airfares. It will be easier to hold conferences anywhere in the country, and will do a damned sight more for regional development than anything Jim Anderton or the Ministry of Economic Development does.
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This is a far cry from the bad old days, when Air NZ had a statutory monopoly on domestic routes (except routes that it didn' t want to fly), was 100% state owned and lost money on all routes except the Auckland-Wellington-Christchurch "main trunk". Ironically Richard Prebble of all people voted against removing the statutory monopoly in 1983 (but redeemed himself by raising the foreign ownership limits on domestic airlines to 50% a few years later to let Ansett NZ become established). The cost of domestic air travel back then was in today's terms around 2.5 times what it is now. NZ has one of the most open domestic airline markets in the world in that 100% foreign owned airlines can operate freely - this is unlike Australia and the US, and is only paralleled by the EU (but this only applies to EU airlines). The threat of competition is clearly very very good for NZ consumers. Now which political party would turn the clock back?

1 comment:

Kane Bunce said...

A stupid, anti-conceptual one.