Definitely that is a way of looking at it. If there is a reasonable expectation that a significant cross-section of potential travelers will drive to another airport then this is a constraint on pricing. One example from when Jetstar flew Queenstown to Wellington was pricing on the Invercargill to Wellington route – the drive from Invercargill to Queenstown is around 2 hours. At that time, flights from Queenstown to Wellington started at around $69, while flights from Invercargill to Wellington started at $109 – despite AirNZ facing no direct competition out of Invercargill.

So really you are saying prices at regional airports close to major airports are set by limit pricing, i.e. they charge “price at nearest major airport + transport costs”. So people still incur the transport cost in a sense when they use their local airport.

Remember the consumer is rationally choosing to travel that 1-2hrs rather than take the flight from their local airport. The consumer believes that the cost saving from taking the flight from the further afield airport is large enough to compensate them for their travel time.
Not everyone is in this position, some people would rather pay a couple of hundred bucks more to travel from their regional airport as they value the convenience or they feel that their time is worth more than spending a couple of extra hours downtime in a car.

Thanks Benje. that clears up my confusion as to how Jetstar could benefit regional routes that they don’t serve. Doesn’t it also imply a cost to consumers though? Driving 1-2hrs each way to the airport instead of using the closer one?

Hi John,

Dunedin and Queenstown are typically included in definitions of main-trunk routes – as are Auckland, Hamilton, Wellington, and Christchurch.

You are right there are many regional routes where prices are appalling – and AirNZ with first-mover advantage can continue charging those fares. However, there are also other regional centres where fares are reasonable – this is often in regional centres that are very close to main-trunk airports with price competition, as if price differentials get too much then people will jump in the car and drive 1-2 hours to a major airport.

There has been an increase in passenger seat-kilometres. However, as pointed out in this article, underlying passenger numbers are a better measure of regional connectivity from an economic perspective in the domestic market. Passenger seat-kilometres are a metric used by the airline industry itself in financial reporting.