The New Zealand Airports Association has called on the Commerce Commission to regulate Air New Zealand's [NZX: AIR] regional fares, where the national carrier has an effective monopoly.
The Auckland-based airline yesterday announced a 45 percent uplift in annual profit to $262 million, its third consecutive year of earnings growth. Domestic routes between the major centers, such as Auckland, Wellington and Christchurch, are often discounted, but the NZ Airports Association says regions are right to question whether provincial routes are generating excessive profits.
"There are big question marks around Air New Zealand's monopoly domestic routes where there is potential for excessive profits, and no transparency or monitoring," said Airports Association chief executive Kevin Ward. "The Commerce Commission could be directed by the government to include monopoly regional airlines in an information disclosure regime. That would be the best way to assure New Zealanders that Air New Zealand's prices are fair."
Airports charge airlines a landing fee, and have an interest in keeping airfares low to boost traveller numbers through their gates. Last year outgoing Air NZ head Rob Fyfe accused Wellington International Airport of price gouging and flagged a $200 million lift in landing fees over the coming five years, which he said in turn forces the airline to lift airfares. Airports fall under Commerce Commission regulation, 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.
In the 2014 financial year, Air NZ increased passenger numbers 2.3 percent to 13.72 million, with a 1.2 percent lift in revenue passenger kilometres to 14.85 million, while short-haul yields improved 0.3 percent to 17.1 cents per RPK. JetStar Airways, Qantas's discount airline, had made inroads into New Zealand's domestic market since launching in 2009, reporting a 22.4 percent market share at June 30 last year, but has since quit its Wellington-Queenstown route, as its Australian parent comes under increasing pressure.
"The virtual monopoly they have in a lot of domestic routes does certainly benefit Air New Zealand," said Grant Williamson, director at Hamilton Hindin Greene. "You do question whether there's going to be any backlash at some stage in the future on some of those routes as you do see a few media reports."
Shares of Air NZ extended yesterday gain, rising 2.1 percent to a two-month high of $2.22. The shares have climbed 3 percent this year, outpacing an 11 percent gain in the NZX 50 Index over the same period. The stock is rated an average 'buy' based on six analyst recommendations compiled by Reuters, with a median target price of $2.30.
Last year the government reduced its stake in the airline to 52 percent, from a previous three quarter stake.