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Travel Agents Issue Warning To Consumers

MEDIA RELEASE

Wednesday 31 July, 2002

Travel Agents Issue Warning To Consumers

The Travel Agents Association of New Zealand today issued a warning to consumers following the announcement by Air New Zealand of reduced domestic air fares. The Association says that while the reduction in air fares is a great short term boost for the consumer, the concern of the TAANZ is to ensure that once down, the fares stay down, and that they are readily available to consumers.

“The focus of the airline appears to be to encourage travellers to book directly with the airline - to make our customers their customers, and to ¡¥shelter’ those customers from other airlines. In other words the competition is for customer loyalty. We have heard today that Qantas is likely to match or better these fares and it remains in the consumers interests to book through their travel agent to ensure that they get the best deal on the day. We believe customers will stay with us because the focus of the travel agent is always on the best deal for the customers. The focus of the airline is on the best deal for the airline.”

“The focus of Air New Zealand on itself rather than the customer is well illustrated in the last two years. During that time and without effective competition, Air New Zealand has leaned heavily on the domestic consumer with inflated fares to help the company to financial recovery. This is simply no longer sustainable as consumer resistance and negativity has been steadily growing and the threat of cut price operators entering the market is very real,” says James Langton, President TAANZ.

Statistics collected by TAANZ members indicate that in the last two years the cost of domestic travel with Air New Zealand has increased by around 30% and at times by as much as 70%*. The variations are between fare types and have particularly impacted on the lucrative corporate market, although the leisure traveller has also been adversely affected.

“The reductions announced today redress the untenable situation of the last couple of years. On top of that Air New Zealand is withdrawing added value services such as business class, meals and alcohol and removing agents’ commissions.”

“The increases of the last two years have often been explained away by the falling dollar and increasing fuel prices. While these are factors, they are by no means the whole story, as a this latest Air New Zealand announcement illustrates.”

“New Zealanders will be attracted to the substantially reduced fares and are susceptible to the frugality message and will forgo nonessential ¡¥extras’. The travel agent may be an optional ¡¥extra’ in the mind of the airline, but not for the consumer. The travel agent is the consumer’s independent advocate and guarantee of the best deal.”

“By encouraging them to book directly Air New Zealand is asking consumers to give up a fundamental right - choice - with the enticement of cheaper fares. Without informed choice there is no fare competition. It is choice that will keep Air New Zealand honest, not their promises.”

“Air New Zealand’s focus is its own bottom line, not the customer’s,” says Mr Langton.

TAANZ says that what is happening in New Zealand is being played out around the world. Full service carriers are being undermined by cut price airlines in both Europe and North America, and Air New Zealand is looking to fill the cut price gap in the domestic market to keep out potential competitors.

“Fare reductions were well overdue, but the attempt to strangle the agency market is against the interests of the consumer. Our industry has always strongly supported Air New Zealand and we will continue to do so, but our first loyalty is to the consumer and that’s why we are speaking out on this occasion. We have seen this situation coming and as an industry we are ready to deal with it.”

“Air New Zealand is painting these changes as a gesture to the consumer. Fundamentally, this is Air New Zealand looking after itself, wrapped in a veneer of consumer benefit. My advice to Air New Zealand is ¡¥you fly the planes, let us look after the customer’s interests’,” says Mr Langton.

(end)

* Refer to supplementary paper “Fare Examples.”

FARE EXAMPLES FOR MEDIA

Any review of air fares is complex. There are a number of factors that influence the fare class that is available to, and suitable for, the traveller. Considerations include:

- How far in advance of travel the reservation is made - some fares have advance booking requirements.

- What flexibility is required - some fares can be changed without penalty, some by paying an upgrade to a higher fare class, some cannot be changed and are non-refundable. The rule of thumb is - the cheaper the fare, the more the restrictions.

- What fare classes are available at the time of booking - only a certain number of seats on any flight may be available at the lower fares. The airline manages the inventory between classes and can make alterations if it chooses to suit market demand.

- What is the length of the intended stay - some fares specify a minimum length of stay away. For example, fares with a two-night minimum stay requirement are not suitable for many business travellers.

All of these factors must be considered by the traveller to ensure they get the best value fare available that meets their needs. NOTE: As a result of the above restrictions, this is often not the cheapest advertised fare.

There is evidence that Air New Zealand has been “price gouging” in recent times by not only increasing the actual fares, but also by increasing the restrictions and reducing the availability of the cheaper fare types. This has resulted in actual costs being paid increasing significantly more that the actual percentage fare increases. This is particularly well illustrated by the experience of those travellers unable to book well ahead. For example business travellers, families attending a funeral etc, have been complaining bitterly about the fare levels they have had to pay.

To illustrate, we invited a number of agencies to provide examples. Some elected to demonstrate by providing information on the experience of a particular business client for their regularly scheduled travel; others provided specific fare announcements as received directly from Air New Zealand. These examples are set out below.

1. Source: Wellington agency specialising in business travel

Actuals for one Corporate Account

Route: Wellington - Auckland (main trunk)

Sep 2000 June 2002 % Increase

119 segments one way 180 segments one way

Full economy fare $310.22 Full economy fare $344.89 11.2%

Average Fare $246.32 Average Fare $294.63 19.6%

2. Source: Palmerston North agency - leisure and business travel

Actuals for one Corporate Account

Route: Palmerston North - Auckland (regional)

Apr - June 2000 Apr - June 2002 % Increase

30 return trips 30 return trips

Full economy fare $455.11 Full economy fare $536.89 18.0%

Average Fare Paid $336.44 Average Fare Paid $425.00 26.3%

Note: This agent reports that Origin Pacific is now providing viable competition for Air New Zealand on this route. Origin’s full economy fare for the same journey as at June 2002 was $398. Promotional fares are significantly less (start from $210 return) and are easily secured.

3. Source: Christchurch agency - leisure and business travel

Agents fares advice as provided by Air New Zealand

Route: Wellington - Auckland one way or vice versa

Illustration of fares used by business travellers

Inclusive of GST and taxes

Fare Booking Class Aug 2000 July 2002 % Increase

Full economy 326.00 397.80 + 22%

B class 285.00 368.79

(now M class) + 29.4%

H class 235.00 318.80 + 35.6%

Q class* 181.00 Not suitable

*Note:

This fare was the "order of the day" for our commercial clients as it could be sold on a one way basis. Now the cheapest one way is the H above so the effect is an increase of 76% = jump from Q to H. Now the Q is a return and requires a minimum of a

two day stay away, so H has become the order of the day.

For families:

There has been a huge impact on the cost of travel for many families by changes in May 2000 to the qualifying ages for child and infant fare levels.

Prior to May 2000 Infants under 5 years free.

After May 2000 Infants under 2 years free - i.e. ages 3 and 4 years pay child fares.

Prior to May 2000 Children - under 15 years paid child fares.

After May 2000 Children - under 12 years paid child fares - i.e. ages 12, 13 and 14 years pay adult fares.

4. Source: Wellington business travel agency

Actuals for one corporate account.

Route: Wellington - Auckland (main trunk).

Sep 2000 June 2002 % Increase

33 return trips 39 return trips

Full economy return fare $652 Full economy return fare $795.60 +22.0%

Average Fare Paid $481.63 Average Fare Paid $634.00 +31.6%


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