Cheree Kinnear talks to Air New Zealand's Head of Aircraft Programmes Kerry Reeves about the exciting changes coming to their cabins.
Video / Jed Bradley / NZ Herald / Air NZ
Air New Zealand's earnings liftoff will be welcomed by taxpayers who have supported the airline with billions of dollars directly and indirectly during the pandemic.
It also throws the spotlight on airfares, where 20 per cent increases in domestic prices have been described as ''another blow to provincial New Zealand''in one region.
The announcement that the airline is back in the black is proof that no matter how well run, airlines can burn money fast when their operating conditions fall apart – such as during a pandemic - but also can earn just as quickly when they're in the sweet spot.
That's where Air New Zealand finds itself now.
On the eve of its annual shareholders meeting, the airline told the NZX it expects to deliver an underlying profit before tax of up to $275 million for the current six months. There's a few riders on that, elevated but stable fuel costs and the impact of higher living costs not killing off demand. Other geo-politics also threaten to darken the picture – an escalation of Putin's war in Ukraine key among them.
But right now the demand picture is positive for the airline. It's not only enjoying robust demand and strong bookings into 2023, but as many travellers who have booked travel recently, it is charging a premium for those seats.
Air New Zealand A321-20 aircraft parked up on the tarmac during the pandemic. Photo / Brett Phibbs
The competition is not yet back in force. On New Zealand domestic routes Jetstar is operating at around 60 per cent of pre-pandemic levels. When Air NZ chief executive Greg Foran revealed that increased costs had driven a 20 per cent hike in domestic fares during the last month, he said there had been ''very little'' customer reaction. That's not surprising given they have little choice, if they want to fly.
Jarden notes that international competition on the key Tasman market is also favourable for Air New Zealand. With Qantas, the Kiwi airline now has the route almost to itself given Virgin Australia is not resuming its main city routes. Air New Zealand revenue per available seat kilometres for July was up 35 per cent on the same month in 2019 and on long haul up 41.8 per cent.
"This level of pricing uplift has more than offset the significant earnings headwind from historically high fuel prices," analysts say.
In good news for the Government, and taxpayers, the airline could be paying dividends as early as 2024 rather than 2027 – a forecast based on previous company guidance.
When the airline was last bailed in 2001 with close to $1b of Government support, it was within a few years paying dividends (and tax), more than repaying the rescue package. But it's worth noting the scale of Government support this time around to help the airline survive the worst commercial calamity in aviation history.
Before its $2.2 capital and debt raise this year the airline also set out in detail support from its 51 per cent owner:
• Negotiated $2b liquidity comprised of a Crown loan and redeemable shares • Obtained confirmation of Crown's participation in current rights offer • Was awarded government-supported cargo contracts worth $620m in revenue since May 2020 • Got wage subsidy support of about $170m • Received about $85m in support under the aviation relief package • Got tax-related relief of $65m and used IRD-approved PAYE deferrals
Last year, shareholding minister Grant Robertson reminded the airline of what the Government expects.
These expectations include being ''commercially sustainable and capital efficient'' and the earnings announcement suggests good and rapid progress here.
The airline was expected to support international tourism and trade by re-opening routes. Capacity is back to 70 per cent and growing with Auckland-New York non-stop flights the flagship of this rebuild.
Robertson wanted Air New Zealand to show leadership in environmental sustainability, including engaging with the development of new aviation fuels, and there has been progress there with the import of the first batch of Sustainable Aviation Fuel (Saf) last week.
Air New Zealand was also charged with maintaining a comprehensive domestic route network that allows people and goods to move across New Zealand in a timely fashion at a "reasonable cost".
How the recent fare hike fits into that is unclear. New Zealand's tourism industry is recovering from its worst ever economic shock and National's tourism spokesman Todd McClay says the price rises come at a bad time out of the main centres.
Air New Zealand is expected to provide domestic travel at a reasonable cost. Photo / Grant Bradley
He says operators in Rotorua are "tearing their hair out" at the increased domestic prices and worried that high international fares into New Zealand could be another impediment for recovery.
Queenstown Airport chief executive Glen Sowry, (a former Air NZ boss) well understands the cost pressure facing the airline and says as yet price rises haven't crimped travel. But he says it's not only tourists who want reasonable fares – those who have left main cities and moved to smaller places to live and work remotely are vulnerable to increased prices.
"We've seen that with very high fares on both the Tasman and domestic especially out of Auckland, load factors have held up very well. [But] it's Economics 101 that when you put up the price too much, you suppress demand."
On the lightly served West Coast, Westland District Council chief executive Simon Bastion is clear: "The increase in Air New Zealand airfares is yet another blow to rural and provincial New Zealand. The cost of living and working on the West Coast continues to get tougher just when we need some support to bring back tourists."
Consumer NZ says travellers have little choice but to shoulder rising fares, its cost of living sentiment tracker (taken before revelations of the fare increases) suggests a shift in mood.
The data shows 41 per cent of New Zealanders expected to fork out less for travel over the next three months, and just 22 per cent expected to pay more.
And this may come to pass, especially as customers burn through unused airfare credits and have to confront full prices.
Jarden says it expects the yield environment to soften in the second half of this year and competition to increase on the Tasman and long haul routes.
"Further, given our expectation that the post-border reopening travel surge will start to abate later in the financial year and the macro/consumer environment will likely remain challenging, we expect demand to weaken."
