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Air NZ looks to jump-start domestic passenger growth by cutting fares

Tuesday 26th February 2019

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Air New Zealand said it is cutting its lowest domestic fares by up to 50 percent from today as it looks to jump-start its domestic passenger growth.

Chief executive Christopher Luxon said the move is the "biggest overhaul" of the airline's domestic pricing structure in more than a decade and will see more than 750,000 seats a year available for less than $50. It doesn't anticipate a material impact on earnings

The airline said it is shrinking its lowest fares on 41 domestic routes meaning Kiwis will be able to fly within New Zealand for as low as $39. Its longest domestic service – the two-hour 1,174 kilometre direct flight between Auckland and Invercargill launching in August will have seats available from $79. 

Fares on the airline’s main trunk routes are also shrinking – Auckland-Christchurch and Auckland-Wellington now start at $49 one-way and Christchurch-Wellington from $39, it said. 

Air New Zealand said the change is "not material" for its earnings. In late January it warned annual earnings may fall by as much as 37 percent as it deals with disruptions caused by global issues with Rolls Royce engines and slowing travel growth. 

It is due to report its first-half result tomorrow and didn't alter annual guidance for pre-tax earnings of $340-400 million in the year ending June 30. That includes the impact of the airline's engine problems. It previously said the engine problems were expected to improve through the year and that a slower pace of growth in domestic travel and inbound tourism had weighed on revenue. 

While Air New Zealand has benefited from a strong tourism sector, that expansion may be slowing. Growth in tourist accommodation slowed in December as international guests spent fewer nights in the North Island, according to the latest data from Stats NZ.

Total guest nights rose to almost 4.2 million that month, 1.4 percent more than a year earlier. But that was less than half the increase posted in October and November and about a third of the increase seen in the final quarter of 2017.

The airline's latest operating statistics showed a 4.1 percent increase in passengers carried across the group to 1.31 million in January. That took the financial year-to-date tally to 10.2 million, a gain of 4.3 percent.

Its domestic routes reported a 1.5 percent increase in passengers carried to 775,000 in January. Year to date it has carried 6.5 million, up 3.2 percent on the year.  

“We have shrunk our lowest fares by up to $45 in a move we believe will further supercharge domestic tourism," Luxon said today. 

The shares fell 0.6 percent to $2.63, and have sunk 15 percent so far this year. 

(BusinessDesk)

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