Jetstar’s regional withdrawal not just bad for airfares

Jetstar recently announced it is planning on stopping its regional flights from Nelson, Palmerston North, Napier and New Plymouth.

Jetstar’s withdrawal from the regional market is a blow not just for consumers, but also economic development in the provinces.

Fierce regional competition between the airlines over recent years has brought air travel within the budgets of a wider range of businesses and households.

The availability of affordable regional air travel has helped support entrepreneurial activity by providing businesses with more efficient access to markets, people, ideas, and capital.

Employers in well-connected regions have also found it easier to convince skilled staff to relocate, with staff knowing they are just a short flight away from friends and family elsewhere.

And if this qualitative assessment isn’t enough, let’s not forget about the influence of affordable air travel in promoting regional tourism.

In 2016, I was commissioned by Jetstar to analyse the economic impacts of their new regional flights to Nelson, Napier, New Plymouth and Palmerston North.

It was one year since Jetstar’s regional turboprop services had started and the airline wanted to celebrate. And with good reason.

Domestic airfares across New Zealand had fallen 10% between December 2015 and September 2016.

Not surprisingly, the cheaper tickets had also brought in a wave of visitors to the regions.

My analysis showed that additional visitor spending following Jetstar’s expansion to Nelson, Napier, New Plymouth and Palmerston North had resulted in GDP growth of up to $40 million for the regions in the first year of operation.

I estimated that a sustained lift to GDP of this magnitude had the potential to boost employment by 600 jobs across those areas.

Not a bad outcome from flying a few old Q300 aircraft borrowed from Jetstar’s parent company, Qantas.

But alas the competition was not to be sustained, and in November, four years after its regional foray began, Jetstar is leaving our regions.

The airline has been beaten back by a shrewdly calculated Air New Zealand regional price war.

Predatory price cuts from Air New Zealand have boosted demand for its services, while squeezing Jetstar’s margins until the airline couldn’t bear the losses any longer.

The smiling assassin, John Key, and the rest of the Air New Zealand board have struck a killer blow to competition.

Air New Zealand shareholders might be happy, but the costs of this success will ultimately be borne long-term by consumers and regional economies.

Without the prospect of competition, regional flight price increases are an inevitable outcome on the horizon.

Let’s hope another brave regional competitor raises its head again soon to fly to the regions.

A version of this article was originally published on Stuff.