Fuel is still 30 percent above normal, but fares have already started falling
As the tensions that once gripped the Middle East begin to subside, the ripple effects are reaching the airfares of New Zealanders booking their next flight. Oil prices, long the invisible hand behind the cost of travel, have softened enough that Air New Zealand has begun unwinding the surcharges it imposed when the crisis was at its height. Yet the relief is partial — jet fuel remains far above its historical norm, and airlines are watching carefully to see whether this easing is a turning point or merely a pause.
- A Middle East conflict resolution triggered a drop in global oil prices, prompting New Zealand's Commerce Commission to publicly urge airlines and retailers to roll back crisis-era surcharges.
- Air New Zealand had moved swiftly during the spike, adding $10 to domestic fares, $20 to short-haul international routes, and $90 to long-haul — costs now being partially reversed.
- Official data shows domestic airfares fell 11.4% in May alone, though international fares dropped more modestly and both remain above year-ago levels.
- Despite the welcome decline, jet fuel is still more than 30% above normal, meaning airlines absorbed costs they have not yet fully recovered — leaving their financial cushion dangerously thin.
- Airlines are holding a cautious watch-and-wait posture, unwilling to commit to further reductions until it becomes clear whether fuel price relief will hold.
When the Middle East conflict wound down and oil prices began to ease, New Zealand's Commerce Commission moved quickly — issuing a public warning that retailers and airlines should revisit the surcharges they had built into prices during the fuel spike. Air New Zealand had been transparent about those increases when they were introduced: $10 on domestic routes, $20 on short-haul international, and $90 on long-haul. As costs softened, the airline began reversing course.
Damien Mather, a marketing lecturer at the University of Otago, noticed the change almost immediately when checking midweek fares. A Dunedin-Auckland return, he found, was cheaper than comparable bookings had been throughout the prior year. He was quick to note, however, that airlines don't simply mirror fuel costs in their pricing — they model demand carefully, balancing the sensitivity of leisure travelers against the relative price-insensitivity of business passengers. The mechanics are rarely visible to the people buying the tickets.
Statistics New Zealand's figures gave shape to what Mather observed: domestic airfares fell 11.4% in May compared to April, landing just 2.8% above year-ago levels. International fares fell more modestly — 5.5% month-on-month — but remained 8.2% higher than a year earlier. Economist Benje Patterson described the trend as genuinely encouraging.
Still, Air New Zealand's own messaging carried a note of restraint. Jet fuel, the airline noted, remains more than 30% above its normal price — and the fare increases of March and April never fully offset the costs the airline had already absorbed. Recent reductions have narrowed the gap, but not closed it. The airline said it would keep watching fuel markets and working with suppliers, waiting to see whether the current relief proves durable. Passengers are paying less — but the airline is not yet breathing easily.
Oil prices have begun their descent, and New Zealand's airlines are already passing some of that relief to passengers. The shift came after the Middle East conflict wound down, easing pressure on global crude supplies. Within days, the Commerce Commission issued a public warning that retailers—from petrol stations to airlines—should reassess the surcharges they had layered onto their prices to absorb the spike in fuel costs.
Air New Zealand had made its position clear in March, announcing fare increases across the board: ten dollars on domestic routes, twenty on short-haul international flights, and ninety on long-haul. The airline had moved quickly when tensions flared, modeling out scenarios and adjusting prices accordingly. Now, as fuel costs began to soften, the airline started unwinding those increases.
Damien Mather, a marketing lecturer at the University of Otago, noticed the shift almost immediately. He checked domestic fares midweek and found prices lower than he'd anticipated. A Dunedin-Auckland return flight, he noted, cost less than comparable bookings would have throughout the previous year. It was a small sample, but it pointed to a pattern. Mather explained that airlines don't simply raise and lower prices in lockstep with fuel costs. They model demand carefully, knowing that price increases drive some customers away while others—business travelers, for instance—remain relatively insensitive to cost. The calculus is complex, and most passengers have little sense of how it actually works.
The data confirmed what Mather observed. Statistics New Zealand's monthly price indexes showed domestic airfares fell 11.4 percent in May compared to April, bringing them just 2.8 percent higher than they'd been a year earlier. International fares dropped more modestly, down 5.5 percent month-on-month, though they remained 8.2 percent above year-ago levels. Economist Benje Patterson called it encouraging, a sign that airlines were genuinely reversing the increases they'd imposed as fuel prices spiked.
But the airline's own statement offered a note of caution. Jet fuel, Air New Zealand said, was still running more than 30 percent above its normal price despite the recent decline. The fare increases announced in March and April had not fully offset the additional costs the airline had absorbed. Recent price reductions helped narrow that gap, but they hadn't closed it. The airline said it would continue monitoring fuel costs and working with suppliers, watching for signs that any price relief might prove lasting rather than temporary. For now, passengers were getting a break—but the airline's cushion remained thin.
Notable Quotes
When the war broke out in the Middle East, they got around the table and drew some lines on the graph and went, 'oh, we're probably going to do this'— Damien Mather, University of Otago marketing lecturer, describing Air New Zealand's pricing response
Fuel is one of our largest operating costs, and fare increases to date have not recovered the additional costs incurred— Air New Zealand statement
The Hearth Conversation Another angle on the story
Why did airlines wait until oil prices actually fell to start cutting fares? Couldn't they have anticipated this?
They did anticipate it, in a way. When the conflict broke out, they modeled scenarios and set prices based on what they thought would happen. But pricing isn't just about fuel cost—it's about demand, about what customers will actually pay. Once prices are set, you can't change them daily without confusing the market.
So the 11.4 percent drop in domestic fares—is that the airlines being generous, or are they forced to cut?
It's both. Fuel costs are falling, so their margins improve if they don't cut. But there's competitive pressure, and the Commerce Commission was watching. Airlines know customers notice when prices drop elsewhere. They're also trying to rebuild goodwill after the March increases.
Air New Zealand says jet fuel is still 30 percent above normal. Does that mean fares will stay elevated even as oil prices stabilize?
Probably, yes. They haven't recovered their full costs yet. If fuel stays at this elevated level, fares will likely settle somewhere between where they were before the conflict and where they spiked to. There's no going back to the old normal.
What about international fares? They only fell 5.5 percent compared to 11.4 percent domestic.
International routes are more complex—longer flights, more fuel per passenger, more competition from global carriers. The dynamics are different. And international customers might be less price-sensitive than domestic travelers, so airlines have less incentive to cut as aggressively.
If oil prices spike again, will airlines raise fares as quickly as they did in March?
Almost certainly. They've shown they'll move fast when costs jump. The real question is whether passengers will accept it, or whether they'll shift to other carriers or stop flying altogether.