Covid 19 coronavirus: Air New Zealand cuts - the mega-trends facing airlines

Air New Zealand A320s parked up at Christchurch. Photo / Supplied

Air New Zealand this week begins the awful process of making staff redundant as the fundamental transformation that the airline industry faces means its business model may never look the same again.

Up to 3500 among 12,500 Air New Zealanders face losing jobs in this round of cuts and further redundancies haven't been ruled out as it slashes its international and domestic schedule down to just 5 per cent of what it has been.

Unions today are calling for the airline to take "a breather" in the process and say the cuts are being made during an alert level 4 lockdown meaning face to face meetings are impossible, making it even more difficult for loyal staff.

Travel restrictions mean flying is ending around the world, European budget airline easyJet overnight being the latest to fully ground its fleet of more than 330 aircraft during what should have been the first week of a busy summer season. Data analysis by OAG has found that in the past week more than 20 million scheduled seats have been removed by airlines around the world and in percentage terms the single largest cut in capacity ever recorded at a global level.

The aviation industry is now less than half the size reported in mid-January as carriers in the United States and India have worked through their recently announced changes.

Air New Zealand is also in hibernation and is likely to take up the Government's $900 million loan sooner rather than later as revenue dwindles and costs remain.

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No matter what shape it emerges from this crisis it will face threats to disrupt it fundamentally.

There will be airline collapses as never before in spite of carriers scrambling to raise more than $35 billion in bank loans or government backstops in the past three weeks.

The companies that emerge from the ashes will look nothing like the airlines that collapse. There will be a glut of aircraft, and in contrast to those typically operated failed airlines in the past, many will be new and efficient. This will give operators the chance to fly low cost operations anywhere demand exists.

Traditional airlines that survive - while pared to the bone - will struggle to compete with newcomers which may be mainly data companies that also operate planes.

This could in turn lead governments - especially the growing number who will find themselves owning airlines - put up barriers to entry, New Zealand's open skies an example of a policy that could be reversed. While that would help protect the Government's investment to a point, it would be terrible for passengers who have got used to highly competitive airfares and extensive networks. Lack of competition ultimately harms airlines.

Parked planes of the airline Swiss at the airport in Duebendorf, Switzerland. Photo / AP

The lockdown may also hasten what has been a turbulent journey to video conferencing, which will be a killer for the corporate market for airlines. Those who have flocked to Zoom or House Party over the last week may have found them to be less than perfect but likely to be better than when users last tried this type of technology. The corporate market is where the high yields are for airlines, either sitting in premium seats or being booked late for high prices.

Companies may decide they'd rather spend their money on technology rather than travel, especially if twitchiness remains around duty of care for staff in the post-Covid-19 world.

Chief executive Greg Foran is clear that it will become a domestic airline with limited international services. That's a reversal of where it all started nearly exactly 80 years ago - its forerunner, TEAL, launched with an international flying boat flight from Auckland to Sydney.

The hope is New Zealand can contain Covid-19 more successfully than other countries and the airline can emerge to fill a what will be a pent up demand for internal travel, if the Government is satisfied moving people around won't light up coronavirus around the country. Equally importantly passengers have to believe they are safe from the virus when flying and more importantly, when then they get to their destination.

• Covid19.govt.nz: The Government's official Covid-19 advisory website

Air New Zealand last year flew to 32 international destinations, that's been cut to 11 now and those services are limping badly with few passengers on board.

If Covid-induced fear of flying is a problem on domestic routes, it's even worse for international travel. For some the experience they've had themselves or seeing others stranded overseas and chillingly advised to "seek shelter", will be permanently scarring. Some won't ever leave their countries again, dealing a huge blow to global tourism.

Freight offers a revenue stream in the meantime and the big bright spot for Air New Zealand remains its ability to emerge less damaged from this mess than its existing competitors and likely new ones. That's why it's going into hibernation - and hoping this crisis eases sooner rather than later.