The Commerce Commission has closed Island Aviation’s complaint alleging Barrier Air was deliberately using heavily discounted fares to squeeze its only competitor out of the Great Barrier Island market.
The Commission told the Barrier Times it received the complaint in May and conducted an initial assessment and further preliminary analysis, including seeking additional information from Barrier Air.
“Following this, we decided the conduct was unlikely to breach the Commerce Act,” a Commerce Commission spokesperson said.
The matter did not proceed to a full investigation, with the Commission saying “it was not clear that the subject of the concern did in fact hold a substantial degree of market power overall.”
The Commission said it had recently communicated its detailed reasoning to Island Aviation.
The complaint centred on Barrier Air offering $98 fares on selected North Shore to Great Barrier services, which Island Aviation chief executive Chris Sattler alleged were below the cost of operating the flights.
Sattler said the discounted fares were concentrated on Friday and Sunday services, which he described as Island Aviation’s busiest and most profitable travel days.
“But they’re offering $98 flights on flights until the end of July out of North Shore. And that is clearly not a cost covering,” Sattler said.
“Unfortunately, the 2 days that they’re flying is the Friday and the Sunday, which are normally the busiest days and the days where you make your money.”
Island Aviation said its North Shore sales had fallen by roughly 50 per cent since the $98 fares were introduced.
Sattler alleged the pricing strategy was designed to “rip the margin out of the market” and ultimately force Island Aviation out of the route, leaving Barrier Air without a competitor.
“I understand people need cheaper tickets, everyone is under pressure. It’s totally understood,” Sattler said.
“But just please, if you can consider the longer term impact, because if this is done just to create monopolies, we all pay for it in the end.”
Sattler also alleged Great Barrier passengers were effectively subsidising Barrier Air’s other regional routes, where it faced greater competition.
He compared fares to Kerikeri with those to Great Barrier, saying the Kerikeri route was approximately twice the distance but cheaper on a per-kilometre basis.
“On Kerikeri, you’re paying a $1.09 per kilometre that you fly out of Auckland. And to the Barrier, you’re paying $3.22 a kilometre,” Sattler said.
“So the Barrier people are subsidising Kerikeri, and the routes where they have competition. And that’s just basically that’s just shocking.”
The complaint was the second time Sattler had approached the Commerce Commission over alleged pricing tactics by Barrier Air.
Sattler also alleged that Barrier Air chief executive Grant Bacon had previously told a former pilot that if he joined another airline flying to Great Barrier, Barrier Air would cut its fares to a level that would force the competitor out of business.
“Grant said to him, if you go to another airline that flies to the Barrier, I will drop the rate so low that they will go out of business,” Sattler alleged.
Bacon has strongly denied that conversation took place.
“I have never made any statement such as that to a Fly My Sky pilot and I actually can’t think of anyone who has flown for both fly my sky and island aviation,” Bacon said.
Barrier Air has consistently rejected the wider allegations, saying its discounted fares are ordinary promotional pricing intended to fill seats and provide cheaper travel when flights have spare capacity.
In its latest response, Bacon said the Commerce Commission had now closed the complaint “with no finding and no further action”.
“It is great to have this sorted,” Bacon said.
“We are operating in incredibly challenging times within the Airline industry and also the greater economy. It is great to see that we can continue to offer our clients more affordable airfares without our competitor trying to keep our fares high.”
Bacon said the airline offered the discounted fares for two reasons.
“One is to fill our planes, two, is to offer our passengers value when they fly on ‘off peak’ services or on flights that have availability,” he said.
“We will continue to do these fares along with our multi pass special fares as often as we can.”
Bacon disputed the suggestion that the $98 fares were specifically targeted at North Shore.
“We have 100s of fares for $98 out of Auckland airport to Great Barrier for May/June/July. Plus our locals return vouchers,” he said.
He also maintained that Barrier Air’s Great Barrier operation was not being used to subsidise its other routes.
“The cost of running an airline is still climbing,” Bacon said.
“We have seen the cost of propeller and turbine engine overhauls double now. A turbine overhaul is now $700,000 USD.”
“Only 24 months ago we used to buy overhauled engines for $320K USD but now you simply can’t get them anymore.”
Bacon said the airline was facing similar increases across aircraft parts and other operating costs.
“Then add the issue of the spike in the cost of fuel into the mix and it makes a $98 fare a very competitive offering,” he said.
The Commission said its decision not to investigate did not rest solely on the question of market power.
“When deciding whether to investigate an issue, we make several considerations,” the spokesperson said.
“This includes whether the matter raises concerns under any of the laws we enforce, the potential for consumer harm, availability of resources, and an assessment of the comparative priority of the various cases being investigated.”
The Commission also considers its enforcement priorities and enforcement criteria when deciding whether to take a concern further.
“While we cannot investigate every concern, they collectively provide us with crucial intel and data on trends,” the spokesperson said.
The latest complaint follows a previous Commerce Commission approach by Sattler in 2022 concerning Barrier Air’s pricing to Great Barrier.
The Commission took no further action at the time, with the airline subsequently citing that decision in defending its pricing practices.
The current dispute also comes against the background of a 2018 Civil Aviation Authority investigation involving former CAA deputy chairman Peter Griffiths and Barrier Air.
The CAA found Griffiths had used confidential information obtained at a CAA board meeting to give Barrier Air information about a planned suspension of Tauranga operator Sunair Aviation.
Griffiths had recently taken part-ownership of Barrier Air when he contacted its management after learning of the proposed suspension.
The CAA investigation found Griffiths suggested Barrier Air contact Sunair to offer assistance with outstanding contractual obligations arising from the proposed suspension.
Sunair learned of the planned suspension through the contact from Barrier Air before receiving the official CAA notification.
Griffiths resigned from the CAA board in 2017 after realising the information was confidential and apologised, saying his intention had been to minimise passenger disruption.
CAA board chairman Nigel Gould described the actions as a “profound error of judgement”.
Bacon said Barrier Air had no interest in eliminating competition on the Great Barrier route.
“We haven’t done anything to hurt them and our everyday fares are often more expensive than theirs,” he said.
“We welcome competition and I have never felt that having an entire market is a good thing.”
He said Barrier Air would continue offering discounted fares over the coming summer period.
“Keep an eye on our website as we will be doing plenty of back fill specials and off-peak discount offerings over the summer months along with our multi passes,” Bacon said.
“Summer is starting to sell well, and we are excited for another busy summer.”
Island Aviation was approached for comment on the Commerce Commission’s decision but had not responded before the Barrier Times’ deadline.
Source: Barrier Times
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