Forward bookings for the Auckland-New York route are looking strong. Photo / NYC & Company
Flights for Air New Zealand's new direct Auckland to New York route are looking "pretty full" in the lead-up to Christmas but the national carrier is taking a cautious approach in ramping up the service as the world grapples with ongoing economic uncertainty.
Chief executive Greg Foran said normally to get a route started it would fly there five times a week at least, with the aim to get it up to daily flights. It has started with three a week for New York.
"A statement we often use in the airline is be bold in thought but cautious in deed. I think that is a pretty good mantra for how we should navigate the next 12 to 18 months.
"To have a bit of swagger but at the same time get a little bit cautious because you are not really sure how it is all going to play out. If it is a really deep recession then there could be some challenges."
He pointed to a report in the Financial Times this week where Heathrow Airport was warning that things could get pretty tough over Christmas because of expectations of lower disposable incomes resulting in lower traffic at the airport amid more Covid mutations.
"Maybe they are right, maybe they are not."
The new route has had some challenges since it went live three weeks ago: some baggage needed to be offloaded because of bad weather on the leg from New York to Auckland, and some passengers were paid to stay behind and take a later flight. The New York to Auckland leg is longer because of headwinds, which means they have to take fewer passengers than on the way over.
Foran said one of the challenges was that it was using a plane that was not specifically designed to do 17 hours in the air.
"We were expecting a new plane in September 2022. That plane would have been more specifically designed to do the New York route."
It would have had a new GE engine and fewer seats. Instead, the delivery of the new planes was pushed back because of Covid.
"Boeing initially said yep it suits us to delay it a year. And then they came back to us and said do you know what, we have got some challenges starting up this entire operation, we are going to delay it another year."
Now the new planes may not be ready until September 2024 and even that isn't set in stone.
"We can't guarantee that then - we will know more in a few weeks' time."
"For the next two years we are going to fly a slightly-less-than-ideal piece of metal and it is harder going back than coming up."
If it can't land at Auckland, the airline has lined up Ohakea air base as an alternative, as well as Wellington and Christchurch airports.
"We want to make sure we can get there non-stop. I think that's a really important thing with this route. I'm not going to sit here and guarantee that we won't ever have to go to Fiji - I guarantee there will be some weather event or something, but maybe if that happens once out of every 50 trips that's okay. I just don't want it happening every week."
Air New Zealand chair Dame Therese Walsh said the airline was planning to have fewer planes than it had before Covid and remain flexible around routes.
"Things will change. China is not even open. The ability to have a consistent fleet that you can pivot to different routes and different markets as things change. New York might go gangbusters for the next five years and potentially there is another route.
"To deal with the risks to Air New Zealand I think what Greg has done in that regard is very very sensible because it just puts us in a position where we have got a number of options."
Walsh said the economics of the New York route stacked up pre-Covid and it had rechecked that and they still stacked up.
"But we also have the practicality over time to manage the route, how often we fly to one place versus another and Asia versus North America."
Foran said pre-Covid Air New Zealand had 29 wide-body aircraft but he did not believe they needed to get back to that number.
Instead, they will build back to around 23 or 24 wide-body planes. Foran said it would focus on higher utilisation with planes going for up to 16 hours a day.
"Because in this business the way you make money is utilisation of assets, so return on capital is actually a good measure of how well we are operating."
He said it was too early to say where the demand was coming from on the New York route as it had only been going a month.
"There is no doubt there are plenty of people in New Zealand that have been hunkering for a chance to get to the east coast of America so there is plenty of leisure travel and I think what we are going to see is a good mix of both [leisure and business]."
He said they were also seeing good demand coming out of New York to New Zealand for summer.
The next challenge may come when rival Qantas launches its direct flight from Auckland to New York in the second half of next year.
That would bring more competition and pricing pressure.
Foran said setting the price for flights was complex.
"I have spent years as a retailer. And if you ask me about pricing on groceries or general merchandise I can spend a good 30 minutes explaining how it all works. Pricing on airlines is a topic where we could be here for a week.
"It has got all kinds of moving parts because it has all the complexities of a fresh product like strawberries multiplied by 100 times. This week they could be $2.99 a punnet because conditions are good and there is an excess of supply, the heat has come on.
"Or there could be a frost and they are $7.99 it could be early on Saturday morning and there is plenty there, or later in the day and I haven't got so many I'll put the price up.
"Airlines are like that but with 10 times as much complexity."
He said the general rule was the earlier the booking the cheaper the price.
The airline took a delegation of key business leaders to New York this week, led by Deputy Prime Minister Grant Robertson, in a mission to help bring New Zealand's swagger back and help reconnect it to the world.
The leaders heard from a range of speakers on the challenges that may come from the strained relationship between the US and China, how trust in Government and media has fallen in the western world and the potential for a global recession.
Foran, who previously ran Walmart in America, also leaned on his contacts to convince high-profile entrepreneurs and Indra Nooyi - the former CEO of PepsiCo - to speak to the group about what New Zealand needs to be doing better.
Kiwi basketballer Sean Marks, GM of the Brooklyn Nets also gave leadership and culture tips, from managing a top basketball team in a game where players can earn an average of $10 million a year.
The business leaders also had a chance to connect with Kiwis in New York who are doing well in business.
Walsh, who came up with the idea for the delegation trip in December last year, said it was about recognising that the east coast of the US was a really important market for NZ and for NZ businesses but also that there were Kiwis doing very very well in that part of the world.
"I don't think you can underestimate the criticality of having a shot in the arm for a whole lot of New Zealand business leaders of getting out of the country now that the borders are open.
"Going to an exciting place in the world and just hearing from people and being inspired."
She said the leaders represented a significant part of New Zealand's economy.
"Those people are just buzzing. They are going to go back with good ideas, thoughts around leadership. That is priceless.
"That's a shot of inspiration, of aspiration of opening borders, opening ourselves up in terms of our own world view. And we just haven't done that for several years."
Foran said the key to reconnecting business with the US was to spend time with people face to face again.
"And equally I would say for American businesses that want to do business in NZ go and do the same thing. Relationships in business to me are no different than relationships personally."
• Tamsyn Parker travelled to New York courtesy of Air New Zealand.
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