Air NZ holds more than 80% of domestic capacity and a monopoly on 80% of domestic air routes — making it one of the most concentrated domestic aviation markets in the world.
At a recent Transport and Infrastructure Select Committee meeting, an Air NZ representative said the airline did not see the lack of competition in New Zealand aviation as an issue.
However, New Zealand Airports Association chief executive Billie Moore believed it was a problem, particularly for regional travellers and businesses across the country, because without aviation competition, regional air routes were more expensive.
Dunedin Airport Ltd chief executive officer Daniel De Bono said Dunedin was better placed than some smaller regional airports, because it had competition between Air NZ and Jetstar for the Auckland route to and from the city.
But other routes without competition were more expensive.
"Dunedin is not immune.
"Where there is choice on a route, the market tends to be more responsive — that’s simple market dynamics," he said.
"Like many New Zealand airports, we have seen schedules change over time as airlines respond to demand, fleet availability and network priorities."
He said timings and frequency were important for Dunedin because they affected day return travel, business productivity and onward connections.
"They are critical to the city and the region, and our focus remains on ensuring Dunedin remains well served from a connectivity perspective.
"In any case, we value our relationships with all our airline partners and work collaboratively with them to protect the connectivity that matters most to the region and build capacity over time.
"We will keep doing the hard yards with airlines, to grow services where demand supports it, and ensure our region remains well connected."
Ms Moore believed Air New Zealand was increasing fares on non-competitive domestic regional routes to offset pressure from Jetstar and as a result, regional airfares were up 4.2% for this half of the year, while available seats fell 4.2%.
She said on routes with Jetstar competition, Air NZ dropped fares by 4% and increased capacity by 0.6%.
There had also been a withdrawal of flights regional businesses depended on.
"With over 80% domestic market share, there is little risk another airline will step in to challenge Air NZ's decisions to cut early morning and evening flights.
"Regional businesses lose the flight times they need, with no alternative."
She said there had also been no meaningful fleet investment for the regional network and use of the ageing Q300 turboprop fleet had declined to 62% of historical levels.
"This means far less flying, fewer seats in the market and higher costs being passed through to consumers."
She said it was "deeply frustrating" to see Air NZ continue to point to airport charges as a reason for raising the cost of their airfares.
"Airports must invest in the essential infrastructure that the airlines need to run their businesses.
"Airport charges make up 7% of airline operating costs on average.
"A 10% increase in airport charges changes fares by 0.35%-0.7%.
"Fuel, labour and aircraft costs have far greater impact. Airport charges simply do not drive airfare increases."
Overall, the lack of competition meant Air NZ was "a less efficient" airline and regional flights had been in a "managed decline", she said.
Domestic seat growth has been less than half the rate of economic growth since 2014 and the network still had 1.5 million fewer seats than it did in 2019.
"We talk about competition, not just because it drives lower airfares, but because it creates stronger businesses.
"There’s no quick fix to get more airlines competing in the regions, but competitive disciplines can be applied through transparency and regulation, including airfare monitoring and Commerce Commission oversight."
She said the association welcomed Air NZ's commitment to keep operating at the 20 airports it serves at present.
"It means we now need to work together to get the network into growth mode ..."
