Government tells airlines to rebid for travel contract, hoping for sharper deal

Wednesday 24th February 2016

The government will put its cross-agency air travel contract up for tender when it expires at the end of the year rather than simply renew it due to increased competition both at home and abroad.

The five-year-old contract has delivered $37 million in savings for the Crown, but rather than roll it over, the Ministry of Business, Innovation and Employment will put it back to market, Economic Development Minister Steven Joyce said in a statement. The contract is currently shared by national carrier Air New Zealand, Emirates, Lufthansa, Qantas Airways and Singapore Airlines.

"The decision to re-tender follows a robust review which showed recent changes in both the domestic and international markets are generating increased competition on key flight routes, while some other routes are no longer serviced," Joyce said. "The ministry anticipates there will be significant interest from the market when a request for proposals is released later in the year."

Air New Zealand was the sole supplier for domestic travel, but it's since faced increased competition from an expanded Jetstar offering and the introduction of several smaller regional airlines.

The contract expires on Dec. 31, and had the option for two rights of renewal for a year each, which the government hasn't taken up. A new contract is expected to be in place by mid-December this year.

Carriers have been reaping the benefits of cheap jet fuel fattening their margins, and allowing them to operate more marginal international routes.

New Zealand's national airline is set to report its first-half earnings tomorrow, which Forsyth Barr estimates will show normalised profit more than doubled to $318 million on an 8 percent gain in revenue to $2.6 billion, and will be looking for a special dividend as a result of the airline's strong cash inflows.

Air New Zealand shares rose 1.4 percent to $2.83, having declined 5.9 percent so far this year. The stock is rated an average 'hold' based on five analyst recommendations compiled by Reuters, with a median price target of $3.27.

BusinessDesk.co.nz

Comments from our readers

No comments yet