05 September 2022

It ain't half cheap Mum

 


I don't know about you, but I'm buying a lot less at the supermarket at present. I look at prices and cringe. It's a matter of living within my household budget.

It's not surprising then that our regional airline operators have the same issues. Like any householder they have to balance and live within their budget and they certainly do not have the benefit of being a large company like Air New Zealand that could post a net loss of $591 million in the year to June 30, (up from $292m in the prior financial year) and still keep operating.

So I've been doing some thinking about what items are there in an airline's budget?

For every individual flight there are direct costs...

  • Pilot salary
  • Fuel - costs for Jet A1 have spiraled to almost threefold levels.
  • Airport Fees
  • Airways Fees - that's paid to Airways Corporation to cover the air traffic control and navigation services.
But, that's only part of the equation... There are also the indirect costs that are always going on behind the scenes and these costs are rising placing more pressure on air fares.
  • Maintenance - aircraft have to have regular inspections dependent on the hours flown - so specialised staff and expensive parts. For example one operator told me that a turbine overhaul will set an airline to the tune of some $600k.
  • Staff salaries - check-in, baggage, reservations, administration and management staff
  • Induction and on-going proficiency checks for pilots
  • Aircraft finance and loans.
  • Marketing
  • Aircraft and equipment depreciation 
  • Specialist advisors
  • Operating the airline's own safety management systems
  • Leases for terminal space
  • Civil Aviation Authorities audits of operators and other regulatory costs.
  • Recouping losses and bank overdrafts incurred by Covid
  • Taxes
None of these come cheap... A lot of people served by regional airlines expect fares like they see on the main trunk routes operated by 170 seat Airbus aircraft. They have to pay for the things above, but a number of these spread over 170 paying seats is cheaper than spreading costs over a 14 to 30 seater. People often forget that people from the regional ports served by Air New Zealand often complain about their regional fares for the same reason.

Quite simply if all the airlines in New Zealand wold only the cheap fares they would soon be out of business. The cheap fares are simply there are to encourage people to fly or to put bums on seats. 

Other factors influence some operators. Barrier Air for example can be full going to the Barrier on a Friday afternoon but the return can be very light and vice versa on the Sunday. Originair is trying to find timings that suit business and leisure traffic. Sounds Air are using sophisticated pressurised Pilatus PC-12s that cost more to operate on routes that were uneconomic for Air New Zealand. Stewart Island Flights, Golden Bay Air and the Milford Sound and Great Barrier Island operators have to make a lot of their revenue over the summer to be able to afford going   

None of us could afford to run our household at a loss for an extended period of time and nor can our airlines. So if you hear yourself or other people complaining about fares and not getting bang for their buck think again about the our airlines and the challenges they are facing to keep providing a service that is safe, reliable and that tries to give as reasonable fares as possible.

To our New Zealand regional airlines, fly high... I hope you are able to rebuild after the turbulent years.

5 comments:

  1. Well said Steve. I think that few of us appreciate all the outgoings that these smaller but essential carriers are subject to.

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  2. Great article, Steve. I have often thought that Aviation as an industry should marketed as a 'not for profit'. Aviation was always tough but the 'cut price' no frills model ruined it once and for all as a business. Pax expect $69 seats everyday while the airline suspends them in the air in a leather chair and a free coffee in a $300M aircraft. Then complains bitterly when the flight is 30 minutes late. Its not a bus. It is a highly technical, delicate asset that requires serious money just to keep it in the air. With inflation lately it has become impossible. Good to see that the oil companies are making record profits however. Not...

    Amazing also that pilots unions (especially in the USA) are demanding more and more money ($250 per hour + in certain unions) and are oblivious when the airline announces yet another staggering quarterly loss. "Not my Problem", the unions will say. I have often thought that the governments should stop bailing out these large legacy airlines just to prove a point to the unions. You cant demand large salaries once the liquidator moves in.

    Good on these 3rd level airlines who have gritted out Covid and are now feeling the impact of an oil shock. Painful times.

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  3. Bang on article. The base costs to operate Sounds Air or Air NZ is actually not that different. Certification, Senior people etc.

    I saw a comment on a sounds air post the other day which read "Your pricing is way too expensive given how small your aeroplanes are". ummm Ever heard of economies of scale????

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  4. Excellent write up! I have noticed prices have increased a little, but nothing too crazy. Of all my airline spending, I have noticed Air Chathams have gone up the most. I have actually noticed my spend with Sounds Air has stayed roughly the same.

    Had just flown to Westport from Wellington on Sounds Air, and the return trip only cost me $268.00! $169.00 down and $99.00 back. Booked only 3.5 weeks in advance! Nothing to scoff at that's for sure!

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  5. A good article. A lot of people don't release the actual costs and logistics in operating regional and inter-regional airlines in New Zealand. We have the similar problem about regional and inter-regional passenger rail services.

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