Editorial: Competitive and profitable airline serves public better

Air New Zealand argues a rationalisation of regional services makes sense when road travel is considered. Photo / Alan Gibson

When Air New Zealand made its decision to cut some unprofitable services to smaller centres it would have expected to be reminded that its profits overall are very good. In August it reported an after-tax profit of $262 million, its third consecutive year of strong earnings. Why then discontinue services to centres such as Kaitaia and Whakatane?

The bitter truth for smaller centres is that New Zealand does not have a national airline with network obligations. We have a commercial flag carrier and it is a very good one. It is prospering despite competition on its main trunk routes from a budget airline owned by its main international competitor. The competitor has not been doing so well. Qantas posted a record loss in the year to June after a price war with its domestic competitor, Virgin Australia.

The airline business is a hard one worldwide and no competitor can afford to rest on its results. Air New Zealand is cutting its losses on the 19-seater aircraft serving smaller centres, closing its subsidiary Eagle Air, and buying bigger aircraft for services to the larger regional centres. For a region such as the Bay of Plenty, this effectively means people in the Eastern Bay will need to drive to Rotorua or Tauranga to catch flights to other parts of the country.

Air New Zealand argues a rationalisation of regional services makes sense when road travel is considered. While it may take a Whakatane resident an hour to reach Tauranga Airport, it can take Aucklanders as long to reach Mangere. Modern roads allow travellers to drive to a larger terminal where air fares are likely to be lower. A former Finance Minister, Sir Michael Cullen, now chairman of New Zealand Post, admits many of his fellow commuters from Ohope to Wellington have been driving to Rotorua or Tauranga to avoid the fare from Whakatane.

Even at that fare, the airline could not make the service profitable. That needs to be remembered before any local council considers helping a new air service to be set up. The loss of an air link is always sorely felt by a sub-regional centre even if it provided just one or two flights a day. It was nice to have a connection to larger places no matter how few of the 19 seats were usually filled. Railway branch lines had the same sentimental value. Elected councils are susceptible to public sentiment but their electors need them to apply better judgment. Road transport is the only mode most of them really need.

That may not apply to places as remote as Gisborne, which will benefit from the changes to regional services, but for those within easy reach a road is more cost-efficient for them, for the airline and for the economy than a loss-making, subsidised air service. When we had a national airline obliged to serve unprofitable routes, it was a monopoly that could cover the cost from high fares on main trunk flights and did not need to worry about the quality of domestic services. Thankfully those days are long gone.

Air New Zealand is competing on quality with cheaper airlines internally and larger carriers internationally. It has emerged from a bad investment and public bail-out 13 years ago to be scoring high marks for timely orders of latest aircraft and other strategic decisions. Internally, its ability to survive against Jetstar fares is a constant wonder. It is in a business where conditions can change suddenly and profitability can never be taken for granted.

Air New Zealand is right to cut losses wherever they occur and put its profits into better planes. The public is best served by the airline's success.