Jetstar's regional operations could boost the economy of four centres it serves by about $40 million a year, according to Infometrics research.
The regional GDP growth could support up to 600 new jobs according to the research which notes domestic air travel prices have fallen by close to 10 per cent during the past 12 months.
Jetstar Group CEO, Jayne Hrdlicka, said the report highlighted how important cheap fares were to growing local economies.
That sounds like a good news story, but as with most (if not all) economic impact studies, it only provides half the picture. That's because flying to the regions doesn't suddenly create new money. So, every dollar that is spent by travellers to the regions is one less dollar that would have been spent somewhere else. In the case of domestic travellers who would not have otherwise travelled to those regions if Jetstar hadn't been flying there (which is the assumption made in the report), every dollar they spend on their trip to Napier is one less dollar they would have spent at home in Auckland. One could make a similar case for international travellers, although perhaps cheaper flights encourage them to spend more on other things than they otherwise would (although this is drawing a pretty long bow).
So, if it's reasonable to believe that Jetstar flights add $40 million to the economies of those regions, it is also reasonable to believe that Jetstar flights cost around $40 million in lost economic activity elsewhere in the country (depending on differences in multiplier effects between different regions), and much of this will likely be from the main centres.
To be fair, the Infometrics report (which I obtained a copy of, thanks to the Jetstar media team) does make a similar point that:
...the economic effects of this visitor spending should only be interpreted on a region-by-region basis, rather than as an aggregate figure for New Zealand as a whole. It is likely that some of the increase in visitor spending in regions with additional flights represented spending that was diverted from other parts of New Zealand.The Infometrics report has some other issues, such as assuming a fixed proportion of business travellers to all four airports, which seems fairly implausible but probably doesn't have a huge impact on the estimates. A bigger issue might be the underlying model for calculating the multiplier effects, since multi-region input-output models (I'm assuming this is what they use) are known to suffer from aggregation bias that overstates the size of multiplier effects. I had a Masters student working on multi-region input-output models some years ago, and that was one of the main things I took away from that work. However, that's a topic that really deserves its own post sometime in the future.
Of course, these problems aren't important to Jetstar, which only wants to show its regional economic impact in the best light possible. The next step for them might be to say: "Ooh, look. We've done such a great job enhancing the economy of these regions. The government should subsidise us to fly to other regions as well so we can boost their economies too". Thankfully, they haven't taken it that far. Yet.
You might argue that boosting the economies of the regions, even if it is at the expense of the main centres, is a good thing. That might be true (it is arguable), but it isn't clear to me that increased air services is the most cost effective mechanism for developing the regional economies. I'd be more convinced by an argument that improved air services are a consequence of economic development, not a source of it.
For now, just take away from this that we should be sceptical whenever firms trumpet their regional economic impact based on these sorts of studies.