When Air New Zealand first started flying to Seoul in 1994, the market was booming.
South Korea was for a short time the third biggest market on its network.
But then the Asian Financial Crisis happened.
From 130,000 passengers a year, the route plunged to about 20,000 in the space of a year. Air New Zealand departed the South Korean Capital for the last time in 1997.
But the market has turned, prompting the airline to return and its inaugural flight in its new Korean chapter landed in Seoul late last night after a flight of just under 12 hours.
The South Korean economy has boomed since the financial crisis and although it has slowed to about 2 per cent growth this year tourist numbers to New Zealand - which the renewed service is based on - are solid.
About 87,000 South Korean visitors arrived in this country in the year to September and Nick Judd, Air NZ's chief strategy, networks and alliances officer, is confident this will grow.
"We're fully expecting that will be well over 100,000 off the back of this. When we look at Taipei seen upwards of 25 per cent growth in the year since last November and like this is three times a week," Judd says.
The service to the vibrant mega-city of more than 10 million will increase to up to five times a week from December to mid-February.
"We're confident that not only can we stimulate the market but we can swing a bunch of that traffic from one-stops back to direct services," Judd adds.
There are now also about 40,000 ethnic Koreans in New Zealand and they are more familiar with the Kiwi airline and are expected to provide strong visiting friends and relatives (VFR) demand.
While the decision to fly was mainly based on inbound leisure the airline had found stronger business links than expected and when the New Zealand business market swings back after mid-February, the airline expected to pick up some good premium bookings.
The airline's acting chief executive Jeff McDowall was on last night's flight and says business travellers are now just half the bookings in the premium cabins, which provide the highest yields. Leisure travellers and those visiting friends and family make up the other half now.
Putting the hammer down
Judd says the airline pushed the go button on Seoul much earlier than expected. A worrying slowdown in tourist growth late last year prompted an urgent network review in February.
Network growth expectations went from 5 per cent to 7 per cent to 3 per cent to 5 per cent, aircraft orders deferred but the review determined Seoul offered a growth bright spot.
"We pivoted to launching new routes and stimulating new markets because of the way that inbound tourism was starting to slow. Rather than frequency growth on existing destinations we made a conscious decision to pull Seoul forward," Judd says.
Air New Zealand has up to 10 new destinations on its radar at any one time and Seoul was near the top of the list.
''It was on our road map. It wasn't going to be launched until next season but we felt in the current climate it was better to go into a new market," Judd adds.
From there, it was action stations.
On the first day of sales the airline normally would have local websites ready to go.
''It was a challenge for the business because we weren't as glued up as we normally would be,'' says Judd.
New destinations are always a challenge because of new rules, new regulations and in the case of Korea, new language.
''We have a really strong blueprint for how you launch a route but here you've got all the nuances of the equivalent of the civil aviation authority and all that they require - we had to get somebody to translate our whole charter into Korean," says Judd.
Head to head
Airline fundamentals state it is better to fly solo, from a competitive perspective.
''It's airline 101 if you can fly a route without a competitor it's the way you make money,'' Judd says.
But on this one Air NZ is up against state-owned giant Korean Airlines which in summer flies daily with a 370-seat Boeing 747-800 Intercontinental. Korean would be a ''good competitor '' but was not able to meet demand for non-stop services with passengers flying in via other Asian countries and Australia.
''We knew that a large proportion to the market was coming via one-stop so they don't have the whole market to themselves —they are spilling that traffic," Judd says.
He's confident there's room for both on that route.
''We're really confident that we're a very different proposition from them from a customer perspective," Judd says.
''There'll be a proportion who will want to fly Korean because of their frequent flyer programme and there'll be a proportion of customers who will want to get their first taste of New Zealand when they can - we've got a great reputation thanks to our crew of providing that Kiwiana aspect as soon as they get on board."
Korean Airlines' Auckland-based sales manager Jason Cho says the big Jumbo's cabins have been refreshed and the airline will also operate 20 charter flights, split between Auckland and Christchurch.
''I believe competition and increased capacity will lead to passenger demand market size growth," Cho says.
He says good service and convenient international networks were key factors in Korean Air's ability to effectively compete against other airlines.
Judd says the airline and his specialist team of 25 was constantly monitoring numerous destinations, they may international long haul, they may be short-haul or domestic.
''Firstly you're monitoring your own network you fly today to see if you can add growth there but secondly you're looking at new destinations you can fly to," he says.
The watch list had five to 10 routes which could be launched in the next 12 to 18 months or up to 10 years.
''When you do that analysis you start at the highest level - you look at the macroeconomic data, population density, GDP per capita, propensity to travel", Judd says.
His team will then look at more factors specific to the airline industry, the likely proportion of premium travellers, how often do people from that country travel and what segments travel.
''Ideally you look for strong demand pools from both ends - we're not a network carrier, we're a point to point carrier. It's less about traffic that flows though that hub but more about finding really strong demand both ends of the route.''
''Obviously there's a competition element in there as well - there are some routes that we track that have competitors flying them today and there's some we track that don't but have a reasonable amount of one-stop traffic that's coming over the Tasman or other ways.''
A number of recent additions are re-entries, including Seoul and Taipei.
''We've kept them on a watch list to see if the characteristics got better," Judd says.
The cost of setting up a new route depends on aircraft availability. Running two wide-body aircraft on a long haul route over a year can run north of $400m - if an airline has to buy the planes specifically. With Seoul there was spare capacity with the arrival of a 14th 787 (although renewed Rolls-Royce engine problems means other closer-to-home routes face disruption over summer).
Setting up a new route in the United States is now relatively inexpensive.
''Take New York for an example (where three times a week non-stop services from Auckland start next October). We already fly to four other gateways in America, we have a website built up, a marketing presence built up," Judd says.
In Seoul Air NZ doesn't have a Korean website and a small sales presence.
''It's a different proposition when you want to fly direct especially if you're up against a competitor so that requires a different level of funding and investment from a marketing perspective," Judd says.
About 21,000 New Zealand residents visit South Korea a year and McDowall says Seoul is a dynamic mix of outdoor adventure, contemporary urban life, historically rich temples and a lively nightlife.
''We're certain Kiwis will be keen to check out this new Asian destination."
What next?
Already announced long haul international services are a Christchurch-Singapore service later this year and the widely anticipated New York flights - which will be the longest in its network. This coincides with the withdrawal of Los Angeles-London flights next October.
Airlines look to increase frequency in existing markets if that's how they can maximise profit rather than starting lots of new routes. Building frequency also captures the lucrative business market.
Judd says the airline wants to build frequency depth in North America, Chicago is moving to five times a week, New York three times a week and Houston and San Francisco almost daily, the regularity of services to Los Angeles.
The airline has struggled in other markets, notably Shanghai. Asked about commitment to the Chinese city Judd says: ''You never say never when you run an international network and Korea is a good example of that.''
But China was important because it's a strategic inbound market.
''We've carved out a successful niche for ourselves. We've got Air China for Beijing in a joint venture and we concentrate on that Shanghai New Zealand traffic,'' Judd says. The airline competes with China Eastern in the a city of 23 million people.
"There's enough demand between ourselves to make that work. It's not without its challenges but that's the nature of doing business in China whether you're in an airline or any other industry.''
Other places in Asia also have large visitor pools but the dynamics are not right at the moment.
''You look at a place like India with quite a significant volume of travellers coming down but the yields in that market are so challenging,'' says Judd.
''It's not just the number of travellers but it comes down to what they're prepared to pay and the competition you have and India is an example of that.''
Other airlines were tapping into that market which was highly competitive and was at the end of the chain. There would be payload restrictions.
''It's on the radar but it doesn't look viable to us and good luck to anyone who thinks they can make it work," Judd says.
Vietnam was a case of having ''all the models in the world but until you start flying there you don't know whether they're 100 per cent going to work.''
The airline flew for just three winters before seeing growth at both ends of the route wasn't happening and it pulled the plug in 2018, with Dreamliner engine issues not helping.
In Bali Emirates has poured on capacity - at one stage more than the entire market - but demand has caught up and Air New Zealand is increasing its seasonal flying, next year from April to October increasing to six services a week.
''Bali continues to grow for us. We'd be winding back if we thought we were getting hurt," Judd says
Bali's gain has been Hawaii's loss, the fall of the NZ dollar against the greenback has made it tough not only Air New Zealand but fierce competitor, Hawaiian Airlines.
''Both of us have taken a bit of capacity out over the last 12 months as that market has softened," Judd says.
Thailand is on the radar but the dynamics don't look right at the moment.
Like Korea there was already a carrier directly competing to New Zealand (Thai Airways) but it was different because Korea was big enough for two to operate. Thailand was also highly seasonal.
''The characteristics don't look right at this stage - that's not to say they might be right in one or two year's time," Judd says.
The Herald travelled to Seoul courtesy of Air New Zealand
Lead image: Flight steward Nilaphay Siharath working in Business Premier on board an Air New Zealand Boeing 787-9 Dreamliner on its maiden flight to Seoul, South Korea. Photo / Dean Purcell.
