Air New Zealand - An Interesting Analysis

Air New Zealand: Inside the future domestic airline

by Brook Sabin

ANALYSIS: Just over a month ago, Air New Zealand was making headlines around the world for designing bunks for long-haul economy passengers. Its demise since then, through no fault of its own, has been breathtaking. Fast-forward six weeks, and the national carrier has a majority of its aircraft on the ground and is in a fight for survival. It is the airline equivalent of being in intensive care. Thankfully it's stable, unlike other airlines such as Virgin Australia, which would be listed as critical. Air New Zealand has said it is planning to be a domestic airline, with limited international services for the foreseeable future. But with potentially a third of the workforce being laid off, and future domestic demand running at 1 per cent — it begs the question: what kind of domestic airline will Air New Zealand be? The Government carved out an essential clause in its $900 million bailout of the airline - "the agreement safeguards the domestic network, with flights assured to all current destinations." But what does that mean? In Alert Level 4, understandably, the airline sought permission from the Government to cut flights to most regions, simply because the planes were empty. The airline's Chief Revenue Officer Cam Wallace explained on Twitter that on the first Thursday of lockdown the airline had 89 scheduled flights, with just 165 passengers. That's an average of fewer than two passengers per flight. So the airline cancelled 95 per cent of domestic services - running flights for essential workers only. In something I thought I'd never see, the national carrier now only has one daily flight between Auckland and Wellington. The other main centres are connected by a similarly lean schedule. Jetstar has grounded domestic flights altogether, with no date for its return. In recent days, Air New Zealand's domestic capacity has been buoyed by a change in rules allowing foreign nationals to fly up to Auckland and catch repatriation flights. However, the immediate future isn't looking bright, with Wallace revealing future demand sits at just 1 per cent. So, when will we see flights to the regions resume - and importantly, what kind of frequency? To get the answer, we dug into the Government's agreement. The Alert Level system asks New Zealanders to avoid non-essential domestic travel at Alert Level Two. That means we're unlikely to see any strong demand until Alert Level 1, which could be weeks, if not months away. So, will Air New Zealand have to fly to the regions in the meantime? The Finance Minister's office explained the Government is looking at whether it will allow a dispensation for Alert Level 3, given demand will also be low. But beyond that, for Alert Level Two and lower, Air New Zealand will be required to fly to all regions at least once a day - except Auckland, Wellington, Christchurch and Dunedin - which must have two flights. Any changes to this require Government consent, and the airline must maintain the domestic network for two years, the term of the loan. That is a significant clause. The country is going through one of the most significant economic shocks in living memory, and the national airline must continue to fly to all ports. Routes like Whangarei - so close to Auckland you could drive - depend on connecting passengers, many of them heading overseas. With very few expected to fly internationally, marginal routes could quickly become loss-making for the airline. Even Airways, which employ the country's air traffic controllers, is proposing shutting seven regional control towers. Its forecast reveals the domestic network will only recover up to 60 per cent of original capacity in the next two years. That must be frightening for airline executives. In other words, in two years' time, domestic capacity may only be around half of what it once was. And remember, Air New Zealand must maintain all regional routes for those two years. But it is an election year. And the last thing the Government wanted was to hand out almost a billion dollars worth of taxpayer cash, then face the prospect of the airline pulling out of some regions. What's clear is Air New Zealand has too many aircraft for the near, and medium-term. A spokeswoman for the airline said "we are not currently looking at exiting any aircraft from service, but continue to develop our fleet plan to match the size of the airline in the future." That could mean future deliveries of new A320neo's or even the long-awaited 787-10 could be deferred or cancelled altogether. For the meantime, the focus will be on getting passengers flying domestically as soon safely possible. Because the airline will soon be forced to fly to all 20 domestic airports, and it can't afford to bleed millions more fulfilling the Government's promise. 

Source : https://www.stuff.co.nz/travel/news/120926006/air-new-zealand-inside-the-future-domestic-airline