Journalist fails Economics 101

Glenn McConnell writes:

You can’t get on board the Northern Explorer or TranzAlpine for under $99. Tickets generally cost between $119 and $219. You can’t even get on the Coastal Pacific, between Picton and Christchurch, which is booked out almost every day.
KiwiRail’s pricing is obscene.
It’s a great journey, yes, but why does it cost so much? Most days you can fly Wellington to Auckland for $49 on Air New Zealand.

McConnell seems to not understand costs or revenue.

First on the costs side, a one hour plane trip has different costs to a 12 hour train trip. Costs determine what you need to charge to at least break even. Air NZ makes money on their trips. I suspect Kiwirail loses money on their trips.

On the revenue side, only some tickets are available for $49. Many tickets between Auckland and Wellington cost $300. As the marginal cost of an extra passenger is below $49, Air NZ lets some tickets go for $49. But they would lose money if all tickets were $49.

Trains can take an almost endless number of people. Add on another carriage, hire a few more train guards and go.

McConnell seems to think carriages are free In fact they are around $3 million. So to justify a new carriage you would need to be generating around $250,000 a year of revenue from that carriage. Oh plus extra operating costs.

The only forseeable reason KiwiRail has decided to set its price so high is to remain exclusive. It’s expensive for the sake of it. The people at the state-run rail company have made a decision to price New Zealanders off our trains.

It despairs me that a journalist is so limited in thinking that they say there is only one possible reason for a pricing decision, and worse of all it is an illogical decision “for the sake of it”. Not that the price is set to cover costs.

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