New Zealand's international air travel market is unlikely to recover to pre-pandemic levels for five years, say analysts at Forsyth Barr.
In a report into the transport sector, they say domestic travel, which has already bounced back, would take until 2024 to match the same passenger numbers as in 2019.
Analysts Andy Bowley and Scott Anderson say there will be a permanent hit to passenger numbers.
"Added hassles, higher costs, and the apathy to travel among certain population cohorts means that propensity to fly will decline as a result of Covid-19."
Separately analysts at the International Air Transport Association (IATA) forecast that despite the Covid vaccines and testing procedures rolling out worldwide, the recovery of demand for air travel globally would take several years and would not reach the pre-crisis levels before 2024.
In this country, Forsyth Barr says while passenger levels will ultimately return to 2019 financial year levels by 2026, total passengers will be 22 per cent lower for international and 18 per cent lower for domestic compared to the level of passengers suggested by historic trend growth had Covid-19 never happened.
The Covid crisis has sent 44 airlines into administration or out of business, according to international aircraft valuation firm IBA in a separate report.
IBA says aircraft utilisation levels globally have now recovered to 65 per cent of pre-pandemic levels for domestic routes, but are still half those of the most recent peak in 2019 when including international routes.
The Forsyth Barr analysts say last month's opening of the transtasman bubble, vaccination progress, vaccine challenges, infection rates around the world, virus mutations, and evolving global border restrictions made the aviation landscape extremely dynamic.
This meant forecasts came with a higher margin for error than usual.
Forsyth Barr rates as neutral the two companies most impacted by the pandemic — Auckland Airport and Air New Zealand.
Both trade above Forsyth Barr's respective valuations, with the trade-off between transtasman reopening sentiment and fundamentals.
''While we recognise both are trading towards the top end of their respective trading ranges, the battle between sentiment and fundamentals is far from over.''
The bubble has had two pauses between New Zealand and different Australian states imposed so far and the analysts say early passenger data suggests it has started with modest demand.
Passengers, excluding transits, over the first week amounted to nearly a third less than the same period in the 2019 financial year.
This apparent subdued start reflects the short booking window, heightened traveller caution and the initial outbound only nature of passenger flow.. Airline capacity will build over the coming months with higher demand likely around school holidays and the ski season.
There appears to be more initial demand from Australia than New Zealand, in part a reflection of our government's "flyer beware" messaging, where they have been warned that they must look after themselves if air travel is halted.
Current demand is dominated by those visiting friends and relatives.
Bowley and Anderson say there are many variables that will dictate broader border openings beyond the bubble.
Vaccination rates, the concept of "herd immunity", international precedent and the global prevalence of Covid-19 will influence the nature and timing of re-opening, but ultimately the decision will be political.
The "health first" approach taken to date by the New Zealand Government means wider border openings are unlikely in the absence of very high vaccine uptakes.
Australia is also taking a cautious approach and its international borders might not fully reopen until the middle or second half of 2022, Trade Minister Dan Tehan said on Friday.
Qantas is not expecting to fly long haul until October at the very earliest.
''We expect [NZ] border re-openings to be gradual with a more scientific risk-based framework accompanying the current binary 'green' and 'red' lanes approach".'
The lower number of passengers compared to if Covid hadn't happened was the result of three key drivers of demand: The cost of travel will increase, propensity to travel will decline given added health risks and the added hassles of travelling — pre-departure testing, mask wearing on long haul flights and growing environmental awareness.
"We acknowledge that the increased savings rate may pose a risk to this view at least over the medium term given potential for excess consumer discretionary spending power."
The global aviation industry has quickly recovered from previous black swan events such as 9/11, Sars and the global financial crisis with rapid resumption of the historic growth trajectory.
"We believe this time will be different, given the scale, duration, hardship and ongoing health concerns that have been endured on a global scale," Bowley and Anderson say.
The aviation industry will change as a result with health and safety standards more robust and additional border measures likely to be a permanent feature. Given a large number of variables and influences, the recovery profile and longer-term growth outlook for aviation remains highly uncertain.
The analysts say the domestic recovery has already played out to a reasonable extent.
Passenger numbers excluding lockdown periods, have returned to up to 70 per cent of pre-pandemic levels with 20 per cent of the decline due to the limited level of international connecting traffic.
They expect consumers to take fewer but longer trips and visiting friends and relatives will lead leisure travel; business travel will lag.
In a separate note on Air New Zealand, the analysts say the opening of the bubble provides a welcome boost, but to date has been far from a bonanza. But they say long term the changed competitive landscape could benefit the airline.
The opening sugar-rush of visiting friends and relatives (VFR) travellers was dominated by New Zealand passport holders from both sides of the Tasman.
Demand has since slowed, yet airline schedules suggest a gradual capacity build over the next few months.
The analysts say they expect the airline to still generate a material loss in the second half of this year and remain loss-making through the 2022 financial year.
The airline will fly 19 Tasman routes between 13 airports, including a new route between Auckland and Hobart.
Forward schedules suggest a gradual capacity build over the next few months.
Competition is currently limited to Qantas/Jetstar, with Virgin Australia not returning to the Tasman until October 2021, and fifth freedom carriers including Singapore Airlines, China Airlines and Emirates likely to be absent until broader border re-openings, the analysts say.
Air New Zealand's enterprise value is just 4 per cent below what it was at the end of 2019, despite the current loss-making outlook and significant uncertainty over the recovery profile and size of the aviation market in future.
"However, we are confident that Air [NZ] will enhance its competitive position as a result of Covid-19."
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