Domestic and international air transport in the CPI

Domestic and international air transport had a combined expenditure weight of 2.31 percent in the consumers price index (CPI) at the June 2008 quarter. The concepts, sources and methods used to compile the domestic and international air transport classes are explained in this article.

Position in the CPI structure

Taken together, the domestic and international air transport classes represent 2.31 percent of the CPI. Both classes fall within the transport group of the New Zealand Household Expenditure Classification used in the CPI. The road, rail, and sea transport classes also fall within the passenger transport services subgroup. While international air transport is included in the transport group, overseas package holiday and accommodation costs prepaid in New Zealand are included in the package holidays class within the recreation and culture group. This means that spending on airfares when purchased as part of a package, including other services such as accommodation, is included in the recreation and culture group, rather than the transport group.

Expenditure weight estimation

This section outlines the estimation of expenditure weights for domestic air transport and international air transport.

To estimate the expenditure weight for domestic air transport as at the June 2008 quarter, industry information was used to estimate total revenue from domestic passengers and the number of domestic passengers carried for the year ended June 2007. Adjustments were made to reflect the entry of an additional airline after the year ended June 2007, but before implementation in 2008.

Since only some domestic air transport trips in New Zealand are taken by the CPI reference population of private households living in permanent dwellings, it was necessary to make an adjustment for out-of-scope trips. This involved firstly turning the summed revenue into a total number of one-way domestic air travel trips taken, using an average fare derived from industry information and the CPI monthly survey of domestic air transport.

Trips that were taken by overseas visitors and by businesses were then removed. To estimate the proportion of all trips taken by overseas visitors, information from the Tourism Research Council New Zealand (TRCNZ) International Visitor Survey was used. This survey gives the estimated number of trips taken by international visitors by type of transport used. These trips were removed from the total, leaving only the trips taken by New Zealand residents.

The next step involved removing out-of-scope trips, such as those taken mainly for business purposes, from all trips taken by New Zealand residents. The Domestic Tourism Survey, also compiled by TRCNZ, gives information on the number of trips taken by New Zealand residents, broken down by main purpose of trip. A ratio of in-scope trips to total trips taken by New Zealand residents was derived. The final ratio used was an average of the annual ratios for the four years to June 2007.

The final step involved removing expenditure by people who are not part of private households living in permanent dwellings.

Estimating the expenditure weight for international air transport involved two key steps. First, the volume of in-scope trips, broken down by routes, taken by the CPI population was estimated. Second, these volumes were combined with average prices, which were weighted by the importance of routes.

External migration statistics provided the main data source used to derive the passenger volumes. Information on short-term overseas trips taken by New Zealand residents was used, in conjunction with port of disembarkation data, to derive passenger volumes at the route level. Out-of-scope trips, such as those where the main purposes of travel were business, conventions, or conferences, were removed from the totals.

Information collected as part of the CPI monthly survey of international air transport was used to derive a set of weighted average prices. These average prices took into account the relative importance of airlines for each route, and included the taxes and levies payable on each journey.

After combining the volumes with their corresponding weighted average prices, out-of-scope expenditure by people who are not part of private households living in permanent dwellings was removed.

The routes for which prices are collected each month are weighted to reflect the relative popularity of these destinations.

While international air transport is included in the transport group, overseas package holiday and accommodation costs prepaid in New Zealand are included in the package holidays class within the recreation and culture group. Because the calculation of the international air transport expenditure estimate was based on passenger volumes, the relevant volume data included those departing on package holidays. As such, an adjustment was made to remove air transport expenditure that related to prepaid packages.

Price collection

Due to the sometimes volatile nature of airfare prices, and the popularity of particular travel dates, prices are collected on a monthly basis.

Domestic airfare prices are collected via the Internet (from the relevant airlines' websites) for flights on the main trunk routes (Auckland, Wellington and Christchurch), and between centres on the main trunk and regional airports, for a total of 14 routes. Prices are collected for all airfares within each of the fare bands for a one-way flight departing a month later. This means that figures are not influenced by the availability of seating.

Consumers acquire the right to travel at the time they purchase tickets, which is usually well before the flights are taken. The prices collected for domestic air transport enter the CPI in such a way that prices for any given month are for travel approximately one month later. For example, domestic airfares used to calculate the June quarter, would be airfares collected in April, May, and June for travel in May, June, and July.

International air transport prices are collected from the Internet (from the relevant airlines' websites) and by postal questionnaires sent to selected travel agents. Airfares are collected for 12 routes for travel to destinations in five regions (Australia, the Pacific, Europe, North America, and Asia). For most routes, airfares are collected for a national carrier of the destination country, New Zealand's national carrier, and one other carrier providing services on this route (this carrier is selected each month according to the ‘cheapest other' available airline).

Travel agents supply prices for an economy class seat, for a return flight departing in the middle of the following month, returning two weeks later for travel to Australia and the Pacific, and a month later for travel to the other regions. Prices from travel agents are for the cheapest airfare on each airline and the cheapest other airline regardless of availability. This means that figures are not influenced by the availability of seating.

International air transport prices collected from the Internet are collected for flights departing two months later, returning two weeks later for travel to Australia and the Pacific and a month later for travel to the other regions. The extra month between the time of purchase and when flights depart is a result of not being able to obtain on-line prices regardless of availability. As price collection via the Internet is dependent on flight availability, some discretion is used with respect to the timing of flights.

All prices include the relevant taxes, levies, surcharges, and any applicable booking fees.

The prices collected for international air transport enter the CPI in such a way that the date of travel is consistent for prices collected via the Internet, and for prices collected from travel agents. For example, airfares used to calculate the June quarter, would be prices collected for travel in May, June and July; with airfares for May collected from travel agents in April, and from the Internet in March.

Estimation

For the calculation of the domestic air transport index and international air transport index, monthly collected prices are averaged to quarterly prices. This ensures that particularly cheap, or expensive, months do not have undue influence on quarter-to-quarter price comparisons. The monthly average prices for each route are used to calculate quarterly average prices for each route, by weighting each monthly average price by the number of days in the month in which it was collected.

Quality assurance

Changes to the quality of service that passengers of air transport receive should ideally not be reflected as price change in the CPI. Some changes that have been adjusted for in the past include changes to baggage allowances and in-flight services, such as meals offered by domestic air transport providers.

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