Covid 19 Delta outbreak: Risk NZ will fall off the radar for airlines

Right now, airline network planners are looking hard at where to fly their planes next Northern Hemisphere summer, as they wrestle with the worst economic crisis in the industry’s 100-year history.

Uncertainty over when our border might reopen, and what Covid safety requirements will remain when it does, means this country is being put under the microscope by the overseas-based airlines responsible for 60 per cent of traffic to and from New Zealand.

Airlines are still in trouble and are looking hard at where they can cut their losses and claw back revenue. Losses over nearly two years of the pandemic are heading for $US200 billion ($287b) and passenger numbers are just half what they were before Covid hit.

But there are signs of life. In Boston, airline chiefs have gathered this week for the International Air Transport Association’s annual meeting — an in-person event after Covid forced it online-only last year — and have heard of light at the end of the tunnel.

“We are well past the deepest point of the crisis. While serious issues remain, the path to recovery is coming into view. Aviation is demonstrating its resilience yet again,” says the association’s director-general Willie Walsh.

This year overall demand is expected to reach 40 per cent of pre-crisis (2019) levels. In 2022 that demand is expected to rise again, to 61 per cent of pre-crisis levels.

International tourism showed signs of a rebound this past June and July as some destinations eased travel restrictions in countries that had rolled out vaccinations much faster than New Zealand.

According to the United Nations World Travel Organisation (UNWTO) World Tourism Barometer, an estimated 54 million tourists crossed international borders in July. While that was down 67 per cent from the same month in 2019, it is the strongest result since April 2020.

That has left New Zealand’s aviation and tourism industries worried that as the world recovers it will pass us by, nobbling the previously high-earning tourism sector for longer and leaving Kiwis with fewer ways to get out to the rest of the world.

“New Zealand’s in competition with the rest of the world and the starting gun’s been fired,” says the Board of Airline Representatives’ executive director Justin Tighe-Umbers.

He says there have not been any cases of airlines pulling out of this country for good but it’s a risk, and in order to plan, they need firmer signals from the Government about reopening the country.

Before Covid, Auckland Airport was the gateway to more than 80 per cent of the nearly 4 million annual arrivals into this country.

Now its international traffic is back to where it was in 1972 and its general manager aeronautical, Scott Tasker, says maintaining air links with the rest of the world is delicately poised.

When Covid hit early last year, there were 29 airlines operating to 43 destinations from Auckland. By August this year that had fallen to 15 flying mainly skeleton services to 21 cities.

Some 300-seat planes have been carrying as few as 10 passengers during the pandemic.

The number of arrivals is totally dependent on vacancies in overloaded Managed Isolation and Quarantine (MIQ) facilities.

As they’ve done throughout the pandemic, airlines are adding and dropping services out of their systems.

Air New Zealand has many flights up to the end of next March under review and has cancelled services to Honolulu, Tahiti and New Caledonia. But it has retained a strong foothold in the United States in particular with cargo flights during the pandemic and its chief executive Greg Foran says it is ready to spring back strongly when border settings allow.

More concerning, says Tasker, is American Airlines and Air Canada withdrawing for the entire summer, as they redeploy planes to markets that are restarting.

Just as the latest Government border failure led to the Delta outbreak in August, Prime Minister Jacinda Ardern was committing to start reopening the country from early next year, though she was light on dates and details, and importantly, what health settings would trigger various stages of relaxing border restrictions.

She said then that, from the first quarter of next year, “the country would move to new individual risk based border settings that will establish low, medium and high risk pathways into the country.”

Tasker says the Government is best placed to determine what, how and when the border settings are going to change, and how to safely reconnect to the world.

“That’s their job. They’ve got the best information but what the airlines are looking for is some certainty around what’s the target date, more than anything.”

Air Canada had converted Boeing 777-300s into freighters by taking out economy seats and flying up to four times a week into Auckland, carrying close to 1500 tonnes of high value food and machinery to Canada and beyond. The airline abruptly ended that service last week after rising passenger demand in other parts of the world following Canada’s reopening of its borders to all international visitors last month.

“They’ve got the economy class seats back into them as they can obviously see that there’s now profitable passenger demand,” says Tasker. “This is a good example of an airline that has decided not to return for a scheduled service.”

American Airlines has made the call not to return to New Zealand this coming summer, meaning three routes are ditched — Auckland-Los Angeles, Auckland-Dallas and Christchurch-Los Angeles. Pre-Covid, the three seasonal services brought in about $300m of visitor spending.

Now American Airlines is thinking about what it will do in 2022-23, given that close to $1b in aircraft technology would have to be committed.

Tasker says: “The concern is as other markets start to open up, we may start to see more exits of airlines.”

A smaller airline this week announced a pause, citing ongoing uncertainty about New Zealand border closures. Air Tahiti Nui announced that following a special one-way passenger service on October 13 to operate as a repatriation flight to Tahiti, the US and Europe, it will pause all scheduled passenger services over summer.

General manager Pacific, Daniel Eggenberger, says: “While people in most other parts of the world are enjoying the freedom to travel as long as they are vaccinated, New Zealand’s border remains closed. This combined with a mandatory 14-day quarantine, and the complexity of even securing a spot at an MIQ facility means we can only offer a one-way solution at this stage.”

Farewell to the Golden Age

Tasker says other airlines — with ravaged balance sheets — are making rational decisions by piling on capacity to routes where they have the best shot of making money.

“Airlines are very much in the red after 20 months of Covid, they have decimated balance sheets, they don’t have a lot more cash on hand and a lot of them have taken on additional debt,” he says.

Many have also reduced fleets, with their older and less efficient aircraft parked up in the desert.

“They’ve got smaller fleets and what that means is at the moment they’re not prepared to take risks. They are only prepared to deploy capacity into markets that have stable settings and where passenger demand is coming back quickly.”

While New Zealand had been performing well as a destination for most airlines, as an ultra-longhaul flight for many, it had always been risky.

In the recovery phase it was even more risky, especially now that fuel prices were hovering around three-year highs.

“They will be wanting to move capacity, as you’d expect, quickly into those markets where they can; they can go and chase passenger demand and that makes perfect sense,” he says.

Air New Zealand, with about 40 per cent of the international market, was by far the biggest single player and while it is keen to get flying (fully jabbed) passengers as soon as border settings allow, Tasker says that with about a third of its longhaul fleet retired, there will he less capacity, fewer destinations and tighter schedules.

Combine that with what is shaping up to be a slow comeback by international competitors – some of which may not return at all – and travellers should brace for higher prices.

During what was dubbed “the Golden Age of Travel” before the pandemic, fares dipped below $1000 on some return flights to Europe.

“If we have a more limited choice of carriers in a more limited choice of routes at the back end of Covid, I think you know the only the conclusion you can draw is the prices will go up,” says Tasker.

More flights may require stopovers rather than the non-stop journeys that were available pre-pandemic.

Airlines had operated the latest aircraft to New Zealand, with highly appointed premium cabins — one with showers for first class passengers — which suited the high-value tourists the country wanted to attract before the pandemic, and who would be sought again.

“Pre-Covid we had the airlines that spoke to those markets operating here with good products … serving New Zealanders pretty well. From our perspective, we will be working pretty hard with those carriers to rebuild all of that — there’s obviously challenges ahead.”

He says attracting a new carrier to New Zealand – from first making contact, to the first flight – can take up to five years and requires effort to build the business case, marketing proposition and operational support.

During the pandemic the Government has allocated more than $730m to supporting airlines’ freight operations – a scheme widely acknowledged as a lifesaver – but now the New Zealand market is skewed.

Between Air New Zealand and overseas airlines in June, close to 40 per cent of aircraft were passenger/freighters, while around the world that was just 7 per cent.

“The 21 per cent operated by foreign carriers is at risk. As soon as they see [passenger] demand elsewhere, the break-even subsidy from the New Zealand Government becomes less interesting.”

The desire to avoid restarting from scratch is encouraging airlines to at least a keep a toehold here, but if they did pull out they would be hard to get back.

“If the worst-case scenario was that we end up where we were sort of pre-2015, with less carriers flying here, New Zealanders who are looking to travel out to the world for business, visiting family and for leisure travel will have less choice,” he says.

“It doesn’t feel like a good outcome. The worst-case scenario is that the network doesn’t grow that quickly, the airlines put the capacity somewhere else and end up having to rebuild [here] over the next five to 10 years.”

Tasker says Auckland Airport has been keeping in close contact with all airline customers. “We remind them that what was good in the past is a good sign of what the future looks like.” But they need certainty for operational reasons.

They were complex businesses in a highly regulated industry that has quite long planning cycles. Some also had crew whose unions wouldn’t stand for the possibility of staff being stranded here in the event of a lockdown.

“If you’re an airline, you can’t just decide tomorrow to restart your services to Auckland, you need to allocate an airline and aircraft in the fleet,” says Tasker.

Three to 12 months was needed to be able to advertise and sell the seats to fill up the first flight, get crew allocated and gain approval to operate from regulators here and overseas.

Airlines had different northern summer and winter schedules and often aircraft were allocated across the two seasons. Once a schedule is locked in, it is hard for an airline to change at the last minute.

“It’s not just a switch-on, switch-off type scenario. Airlines do like certainty.”

Source: Read Full Article