High airplane fares are in the media this week, as Air New Zealand is about to pay a special dividend after a 45% increase in profits. Some people have suggested that the airline should cut fares on regional routes instead. But how high are the fares, really?
The NZ Herald investigates the question of high fares in an article on airplane fares. As it turns out, their analysis is a quite good illustration of a central issue in transport evaluation – the value that people place on their travel time.
The Herald has compared the cost of Air New Zealand, Naked Bus and private car prices between North Island regional centres and Auckland or Wellington after Air NZ faced criticism this week for the price of its regional airfares. It found travellers could be paying more than 10 times more for the convenience of flying.
You’ll have to go read the article to see their summary table, but it looks as though airplane fares are generally competitive with the cost of driving – a bit higher on some routes, a bit lower on others. Intercity buses, on the other hand, can be up to ten times cheaper, but often take half a day to get to the destination.
The Herald finds that some people are willing to trade off time for money, but to my mind their examples don’t exactly prove that airfares are excessively high:
Massey University student Lauren Cornish is one of many who opt to drive because of what they see as unaffordable airfares.
The veterinary science student has been studying in Palmerston North city for six years but returns home to Auckland regularly.
In that time she has taken no more than five flights – instead opting for a seven-hour drive home more than 20 times.
“It is never economically viable to fly, ever,” she said. “If I get Grabaseat deals, they can be okay, but they are obviously very inflexible and it is still around $120.” Instead she pays $90 in petrol to drive one way.
Now, to me, spending $30 to save five hours in a car sounds like a fantastic deal! If I’m travelling on business, my time’s worth much more than that, so it’s highly economically viable to spend a bit more money on a plane ticket. However, there have been times when I’ve placed a lower value on my time – for example, when I was a student, I would go to great lengths to avoid spending my limited money. (Except on beer, for some reason.)
In short, comparing airfares to bus fares and the cost of driving doesn’t tell us much about whether Air New Zealand’s fares are too high, but it does nicely illustrate the way that different people may value travel time savings. For some people, it will make sense to spend more on airfares to save time; for other people with tighter budgets, cheap bus tickets are the way to go.
The important thing is that there are choices in the transport market. For intercity travel, different options are available to people who have different needs. But, oddly, we don’t offer a very good travel choices within our cities. In Auckland, it is easy to travel by car, which works well for people who prefer relatively fast, point-to-point travel and who can afford the up-front costs of owning a car. But much of Auckland is missing public transport, which is better for people who don’t want to (or can’t) pay the up-front costs of car ownership and don’t mind waiting for the bus. Similarly, we’ve made walking and cycling really hard, although walking is just about the only free travel option we’ve got.
In economese, the intercity travel market caters for heterogeneous preferences, but urban transport seems to have been planned on the assumption that we’ve all got the same preferences. So: what’s your value of time?