Air New Zealand’s sky high fares into and out of Hawke’s Bay have long been viewed as an artificial cap on economic development, accentuating the region’s remoteness from the main centres.
When Jetstar began eyeing Hawke’s Bay Airport as one of four routes it planned to compete in, the region’s political luminaries came out in force, crunching the numbers and restating every positive thing they could about backing the Bay.
Within weeks of Qantas-owned Jetstar announcing it would play off eight regions for the privilege of its presence, twin city mayors Bill Dalton and Lawrence Yule and their CEOs and Business Hawke’s Bay had collaborated on an enticing proposal.
Napier’s Labour MP Stuart Nash took out a full-page advert and Tukituki MP Craig Foss created a Facebook page called Hawke’s Bay Supports Jetstar Flights which has 15,396 likes as BayBuzz goes to press.
You could cut the air with a turbo prop. So which destinations would host Jetstar’s fleet of five 50-seat Bombardier Q300 aircraft: Hamilton, Rotorua, New Plymouth, Palmerston North, Tauranga, Nelson, Invercargill or Hawke’s Bay?
A decision was expected in early September when tickets would go on sale for December flights.
Competition expected
State-owned Air New Zealand knew its monopoly was under challenge, given the 37.5% increase in Hawke’s Bay passengers in the decade to June 2015 and projected growth of 15% in 2016, and responded quickly with selected discounts.
A spokesperson said the airline said it already faced competition in most centres but would defend its patch and continue to invest heavily.
It had already upgraded to 68 seat aircraft between Hawke’s Bay and Christchurch and larger planes would join Auckland and Wellington routes over the next 12 months bringing on around 40,000 additional seats, up 6.5%, in 2016.
Despite Hawke’s Bay Airport’s “song and dance” about growing to 475,000 seats a year, Hastings City councillor Simon Nixon reckons “that’s pathetically small” compared to what decent competition would stimulate.
Although Tourism NZ statistics suggested 15-20% of New Zealand flights were business-related, he says a survey “a few years ago” showed around 50% using Hawke’s Bay Airport were business people.
Nixon concludes Air New Zealand has been “suppressing the non-business sector through high fares and limited capacity”. What we’ve been missing out on, he says, are those visiting friends and family and for recreation and holidays who simply can’t afford the fares.
BERL (Business and Economic Research Ltd) estimates a 1% reduction in airfares generally equates to a 1.5% increase in the number of travellers.
Nixon estimates even a 25% fare reduction, could see Hawke’s Bay Airport traffic grow 40% to around 900,000 seats, providing a potential $50 million economic injection.
Multiplier effect
Mike Purchas, a member of the Business HB and joint council group that put the business case to Jetstar, agrees “you only ever feel you are getting a fair price when there’s competition in the market.”
It’s generally accepted that a competing carrier brings reductions of 15-20%. “Having a second carrier will result in massive spin off benefits for tourism, business and other areas – there will be a multiplier effect.”
Jetstar New Zealand head Grant Kerr, told BayBuzz its low fares model has resulted in up to 40% reductions in other regions. Either way, says Purchas, “that’s transformational … for Hawke’s Bay.”
The immediate impact would take out costs being borne by Hawke’s Bay residents and visitors with the increased volume of travellers “blowing tourism numbers out of the water”.
Commercial decisions would be made within a couple of years. “Existing businesses would move more staff here, they would travel more frequently and new business would be encouraged.”
Purchas’s own Sportsground.co.nz may relocate its sales office from Auckland. “It’s difficult to operate a business here when your major suppliers are outside the Bay.”
Jetstar says decisions on new routes are all about “commercial viability and which regions offer the most potential for growth”, something local stakeholders were confident of.
Monopoly exploitation
Simon Nixon, a long-time advocate for expanding the airport and adding a competitor, says Hawke’s Bay had to be in the running as it handles double the passengers of most other competing regions.
In the past he’s accused Air New Zealand of “monopoly exploitation”, something he says a government-owned business should never justify simply on the basis of lack of competition. He even asked the Commerce Commission to look into it without success.
Most business people won’t drive to other regions or use Grab-a-Seat offers a month in advance and have little choice other than to accept fares on the day and time they need to travel, says Nixon.
“Just try and get an early flight to Wellington on Monday or Tuesday and back Friday and you’ll be paying top fare if you can get a seat.”
Checking well ahead for a mid-August flight to Auckland on a Thursday returning Sunday, BayBuzz found the cheapest combination was $248 – $298. The longer you left it the closer it got to $500.
The average fare to Wellington was $233 and Christchurch $358. A comparable flight from Auckland to Wellington and return would be $188, with the lowest cost portion being $49.
Simon Nixon tried to arrange connecting flights to Hawke’s Bay for his son and girlfriend who arrived in Auckland from the UK late in January; $230 each was deemed exorbitant so $75 flights were arranged to Rotorua.
The family booked accommodation in Rotorua “did all the tourist things” then drove to Hawke’s Bay. Discovering equally high return fares they hired a car, left a week earlier than planned and drove to Taupo to spend their money before heading back to the UK.
More bums on seats
Nixon believes Jetstar will be a game changer for Hawke’s Bay “more so than anything else in my 40 years in the region”.
The tourism and visitor industry would be major beneficiaries “with more people flying in for events such as league, rugby, cricket and a lot more coming to visit families.”
Concerns about sustainability and long term commitment or the undermining of Air New Zealand’s service levels were among initial criticisms. In June, Napier Mayor Bill Dalton, while welcoming competition, warned Radio New Zealand National listeners Jetstar might scoop the cream out of the business.
Scavenging the 7am flights to Auckland and Wellington and the 7pm return flights, could erode Air New Zealand’s profitability and threaten the frequency of its flights.
In the past Origin Pacific and Ansett tried to compete but failed to maintain profitability. “Historically Air New Zealand is very good at defending their regional markets,” says Purchas, although he believes “more bums on seats” would mean a sustainable model for both airlines.
While it would be naïve to think loyal Air New Zealand customers would stay that way, Purchas suggests the public are fickle. “While they’ll typically vote for the cheapest carrier, there’s a tendency to favour whoever is defending the market rather than the new entrant.”
Both players prefer a partnership approach to secure loyalty. Air New Zealand’s Starfish campaign offers discounts for committed businesses and there are further plans for marketing and tourism events, including a renewed three year commitment for Art Deco Weekend and the Hawke’s Bay International Marathon.
Apart from long overdue competition, the airport itself is facing significant changes. Our local councils as joint 50% shareholders are engaged in a war of semantics over the name; Napier approved Ahuriri Airport Hawke’s Bay while Hastings wants Hawke’s Bay Ahuriri Airport.
Meanwhile the Crown is required to offer first option on its 50% shareholding, valued at around $9 million, to Mana Ahuriri Incorporated as part of its Treaty of Waitangi settlement.
And sign off on a new $6-8million terminal extension is imminent, with an expectation it’ll be operational for the 2017 Te Matatini National Kapa Haka Championships.
Simon Nixon believes airline fees and car parking revenue from doubling the number of travellers could boost Hawke’s Bay Airport’s annual profits by a million dollars.