Pricing and Competition in Australasian Air Travel Markets

Abstract

The paper analyses more than ten thousand observations on prices charged for air travel on 1001 flights on eight New Zealand and twenty one trans-Tasman flights observed in 2004 and 2005. The main findings are (i) that routes on which Qantas competes with Air New Zealand tend to have air fares around 20% lower than routes served only by Air NZ; (ii) Emirates and Pacific Blue offer much lower fares across the Tasman but yet cannot achieve substantial markets share implying that (iii) these airlines do not offer much competitive constraint on the pricing of the larger carriers so that (iv) elimination of independent competition between Air NZ and Qantas would be likely to result in air fare increases.