Code sharing good, tourism good. Reconcile.

Qantas and AirNZ will not code-share. Thank goodness.

Code-sharing is undoubtedly good for the airlines as it allows them to load their aircraft more and increase prices to closer to the monopoly price. Unfortunately the societal cost is large – not only do travelers pay more per flight, but they also spend our flying time in cramped full planes. Meanwhile the number of tourists arriving in New Zealand drops.

The economics of international flights to New Zealand are skewed, and the positive externality of extra tourists arriving is not captured in the return the airlines get.

Airlines want to price so that they maximize their profit – and this most likely means prices that are a bit higher than they are currently. The result would be lower volume (and lower costs by removing flights). A code-sharing agreement would let them do that.

Meanwhile New Zealand and Australian economies benefit greatly from tourism,  want to maximize the number of tourists arriving, and also want them to arrive after a positive flying experience – which means cheap and comfortable.

Cheap and comfortable means partially filled planes, bigger seats, lots of flights and low prices. This is essentially uneconomic for the airlines.

Given that the difference may be in the tens of dollars per passenger, we should perhaps think about how the tourism industry can pass on some of the extra income from extra tourists back to the airlines. This would align incentives – low prices and comfort for passengers, volume at economic prices for the airline and more volume for the tourist industry.
The issue is that New Zealand’s (correct) desire for active tourists – those that don’t come on packages – means that our tourism operators are small and specialized rather than offering complete experiences. Thus they do not have the power individually to pay kickbacks to the airlines to subsidize low fares. Collectively will be hard without Government involvement.

Straight Government subsidies are out – or are they? Possible ways to do this are by playing with tax on fuel (if there is any), airport taxes, or even a straight payment for every foreign tourist that pays less than $x per passenger mile when coming here (and travelled from further afield than Australia). That last one does not address the cramped planes issue. Perhaps a $x per passenger mile x seat-pitch number would work better…

Some thought required.

Published by Lance Wiggs