How do we fix our domestic aviation market?

The first part in this series looked into why it’s so expensive to fly domestic. In the final part, we share the stories of regional New Zealanders affected by our concentrated domestic airline industry.

Our domestic airline market is too concentrated

There isn't much choice when it comes to flying domestic in Aotearoa.

The biggest operator is Air New Zealand, our national flag carrier, which dominates 86% of the market. The government owns a 51% majority share of Air New Zealand, with remaining shares publicly listed on the New Zealand Stock Exchange.

Nationally representative data from Consumer’s Sentiment Tracker shows 51% of New Zealanders think our domestic aviation market is uncompetitive. Only 20% of us think the market is somewhat competitive, with just 2% of people agreeing the market is very competitive.

Air New Zealand’s large market share is also concerning for some industry stakeholders. In a media release, the New Zealand Airports Association (NZAA) said data by Sabre showed our domestic market was the least competitive in the world.

"The second least competitive country is Bolivia where one airline holds 84%, followed by Turkey where one airline holds 69% of the market, followed by Argentina and Nepal with one airline in each country holding a 67% share.”

Even places like Ireland and Norway, which are long countries with smaller or similar land areas and populations to New Zealand, have more competitive markets than ours.

NZAA went on to say that Air New Zealand “dictates the price, routes and flight schedule available to regional New Zealanders.”

But what about Jetstar? Does it make a difference?

Is Jetstar an effective competitor?

Jetstar is owned by Australian airline giant Qantas. It controls about 13% of the market and operates six direct domestic routes. By comparison, Air New Zealand operates 40 direct domestic routes and 139 indirect routes.

This means Air New Zealand only faces direct competition from Jetstar on 15% of its direct routes and 3% of its total routes. That competition, though meagre, gives consumers choice about the fare they pay. For instance, a seat booked on the same day from Christchurch to Auckland with Air New Zealand costs $217 but will only cost $77 with Jetstar if you're prepared to leave two hours earlier. Both flights included carry-on baggage only.

Unfortunately, Jetstar can’t fly everywhere.

Smaller airlines such as Sounds Air control the remaining approximately 1% of the market. These airlines provide important services to some parts of regional New Zealand. Like Jetstar, these smaller airlines can’t fly everywhere.

For example, Sounds Air only flies nine routes, while Air Chathams is around 17. That leaves the rest of regional New Zealand with one choice – Air New Zealand. Want to fly from Gisborne to Hokitika? You can only fly with our national carrier, the sole carrier that flies into Hokitika Airport, and if it’s last minute, it could cost you $900.

Why can’t we have another player?

Despite an “open skies” agreement that means any Australian airline can enter our market and start operating, we’ve only got two players and haven’t had a new entrant in decades. So, what are the barriers to entry?

When we asked Jetstar, it said high airport charges were a large barrier to entry into the New Zealand domestic market but didn’t expand on other factors.

Air New Zealand, which recently told Radio New Zealand that there were “no barrier[s] to entry for an airline to start up on any route in the Air New Zealand network,” declined to comment for our story.

However, an industry source, who Consumer has agreed not to name, said there are many.

“New Zealand doesn’t have a robust reporting regime for domestic airline activity, whereas Australia does... Without having some passenger/airfare information publicly available, it’s hard for potential airlines to recognise [and] assess the commercial opportunities available in New Zealand,” the source said.

They cited Air New Zealand’s large market share and its decades of experience, noting that years of market information, including travel patterns and fare information, was inaccessible to other potential players.

Operating a successful domestic service is also made more complex than usual here, they said, due to our two-tiered aviation market.  

“The main trunk (Auckland, Wellington, Christchurch, Queenstown) have significantly large volumes to warrant the use of domestic jet aircraft (170-plus seats), whereas smaller regional markets are more suitable for smaller aircraft in the 50 to 70 seat range,” the source said.

This means an airline seeking to provide a nationwide service must have a diverse fleet made up of jets and smaller planes such as turboprops.

A diverse fleet is expensive. The source said this was the problem with Jetstar’s operations. In 2015, the airline expanded to operate services in the regional market in addition to established services along the main trunk. But in 2019, the airline ceased its regional operations.

Jetstar said at the time that it’s regional network just wasn’t profitable. Gareth Evans, Jetstar chief executive officer at the time of the withdrawal said, “The New Zealand regional market is facing some headwinds, with softer demand and higher fuel costs and we don’t see the outlook changing any time soon.

“We have given it a real go. However, despite four years of hard work, including becoming the most on-time of the two major regional airlines and having high customer satisfaction, our regional network continues to be loss-making.”

The source said that now, with a limited number of routes, it’s hard for Jetstar to attract customer loyalty like Air New Zealand.

The fear of competition

The threat of a highly competitive response from incumbent airlines could also pose a barrier for newcomers looking to operate here.

“It is very difficult for new entrants to compete when they do choose to enter the market, particularly with the incumbent airline having such a dominant position.  Incumbent airlines will add capacity on routes new entrants start to flood the market with an oversupply of seats so the new airline cannot make money,” the source explained.

Other responses could include changing schedules to fly at the same time as a new airline or reducing fares to the same level or below.

“This behaviour happens around the world and is very difficult to prove.”

According to our source, a strong competitive response from Air New Zealand occurred in 2016. The source said it contributed to Jetstar’s withdrawal from the regional market.

During our investigation, we heard several accusations against Air New Zealand using market power improperly. Due to the nature of the industry, where our biggest airline is also our airports’ biggest customer, we can't shed any light on these stories without risking the livelihoods of other market players.

Billie Moore, chief executive officer of the New Zealand Airports Association said “[Regional] airports’ viability is in the hands of Air New Zealand’s business strategy and decision making. I can say that it is a constant area of concern and anxiety for many of my members.”

Active competition monitoring in Australia protects consumers

Across the ditch, consumers have access to more information and cheaper fares. In June 2020, the Australian Government directed the ACCC to monitor the prices, costs and profits of the major domestic airlines.

Since monitoring began, the ACCC has expressed serious concerns about the competitiveness of Australia’s domestic aviation market. That’s despite the market share split looking reasonably diverse, at least when compared to New Zealand.

Just over a year ago, Australia had three major players: Qantas, including Jetstar, Virgin and Rex. Then a year ago, Bonza joined them. In March 2024, no player had more than a 36% market share, or 62% if you combined Jetstar and Qantas.

Yet after 3 years of monitoring the industry, in what was meant to be its final report in June 2023, the ACCC warned that the market was at a critical juncture.

“Other than natural monopolies, the domestic airline industry is one of the most concentrated industries in Australia."

Even with four major players, the ACCC noted that expansion of Bonza and Rex was necessary if the market was going to continue to become more competitive.

With a larger population, higher GDP and more domestic carriers than us, the Australian Government is taking market concentration and competition concerns seriously. It has issued a further direction, allowing the ACCC to continue its monitoring.

Unfortunately, in April 2024 Bonza suspended its operations. The ACCC commented at the time that if the carrier was unable to continue, it would be “detrimental to competition”.

Then in July, Bonza’s creditors voted to liquidate the company.

At the time of writing, Rex Airlines has also entered voluntary administration.

Back at home, our domestic market is looking just as concentrated, yet our government isn’t doing anything to fix it.

We deserve competitive markets

Competition issues in many of our markets have come to a head in recent years. Since it was bestowed with the power to conduct market studies, the Commerce Commission has been busy investigating the fuel, grocery, building supplies and banking industries.

Consumer thinks domestic air transport should be next.

We’re concerned by the highly concentrated nature of our domestic air transport market, and we’re not convinced that consumers are getting the best deal. To ensure consumers aren’t paying more than what’s fair and to keep Aotearoa connected, we’re calling for:

• mandated breakdowns of the costs in a ticket at the checkout
• disclosure about airlines’ use of dynamic pricing and profits
• a market study to give consumers and the industry clarity about the factors impacting on competition, including pricing and price gouging.