Former airline boss warns New Zealand's opening will be hampered by first-mover Australia

Ed Sims fears that, with fuel prices rising, far-flung New Zealand will struggle to lure back many of the international carriers which flew here pre-Covid. Photo / Getty Images

Ed Sims has learned a thing or two about working in the shadow of a bigger, cashed-up neighbour. And even as the skies finally brighten for inbound tourists to New Zealand and the businesses which rely on them, the former airline boss worries that reconnection for this country will be damagingly late and, critically, outpaced by Australia.

"Australia is like the United States, in that when recovery happens it can happen very quickly. New Zealand competes very directly with Australia for long-haul tourist dollars, we're opening up later and I think there's a very real risk in that."

Sims, a Welshman who can turn on a lilt to prove it, is talking, primarily, about recovery for the travel, tourism and hospitality sectors, and its international backbone, aviation, where he's spent the bulk of his career, including a decade-long stint at Air New Zealand, the top job at state-owned Airways NZ, and most recently at the helm of Canada's second-largest carrier, WestJet, through the depths of the Covid-19 pandemic.

Sims returned to Auckland last November, having spent the previous two years grounding and then returning to service hundreds of aircraft and thousands of pilots and crew. Through 2020 and much of 2021, Sims says, he spent countless hours locked in negotiations with Canadian finance ministers, first Bill Morneau, and then his successor, Chrystia Freeland, and their deputies.

Sims' efforts were twofold. His first aim was to negotiate government support for his airline that didn't entail bargaining away shareholder equity (the parties never reached agreement and, unlike rival Air Canada, WestJet declined the Canadian Government's many-stringed offers of financial aid). His second mission was to impress on the Canadian Government the disadvantage that Canadian airlines like his own were suffering in light of starkly different US policy.

Canada perennially suffers from a "brain drain" of talent that flows south across the border to better-paid jobs in the United States. The pandemic exacerbated this problem, according to Sims. A US$50 billion package of grants and government-backed loans helped propel US airlines to early recovery, and so too did a relatively light touch stateside when it came to Covid-related regulation.

"New Zealand and Australia have an unhappy parallel for me … it was relatively easy for pilots or for engineers to say I'll go and work for a US operation [when they were recovering sooner] rather than a Canadian operation, and I'd like to think that the New Zealand Government is looking at that Canadian-US parallel."

Until very recently, New Zealanders' departures were hampered because of the Government's suspension (through use of the MIQ system) of their right of return. But now that those restrictions are lifted, fears are building that departures will accelerate. Earlier this month ANZ economists warned that New Zealand's staggered reopening creates "a significant risk" of a large net outflow of Kiwis this year, especially to Australia.

Australia opened its doors to all vaccinated tourists, without isolation requirements, in mid-February.

In contrast, New Zealand will allow vaccinated Australians entry without isolation from April 12, and further open to the citizens of countries which don't require a visa at the beginning of May. The Government has said it's reviewing its timeline for allowing entry to the balance of travellers; the most recent guidance is that they will be allowed to return in October.

"I fear that we still have the conditions for considerable migration of skilled workers to Australia because Australia is going to benefit from that faster opening up. I think the Government would be wise to work very closely with the sector here, and consider some significant investments to target hiring, service (think of improved service through technology platforms and updates), and training.

"Training budgets will have been absolutely decimated by the pandemic … we can't just sit here crossing our fingers for a bumper summer in 2022/23 there's a huge amount to be done to prepare," Sims warns.

He also favours more long-term government infrastructure investments in the sector, and he says there are few more compelling projects for its help than Auckland Airport's mothballed plans for a second runway.

The return of travel

The return of travel, Sims notes, is already markedly asymmetrical. While Northern Hemisphere flying in North America and Europe is recovering "very considerably" he says, air travel in the Asia-Pacific region, where restrictions are easing much more slowly, is notably lagging.

"Very early on in Covid, economists talked about what the recovery would look like. Would it be U-shaped, or W-shaped. I think everyone's greatest fear was that it would be K-shaped. I think that's what's happening, I think the upper tick of the K is the Northern Hemisphere [regions like the US and Europe] and the Asia-Pacific is the lower tick of the K. You've got a rate of recovery in the Asia-Pacific that's a fraction of recovery elsewhere," he says.

Indeed, International Air Transport Association (IATA) figures show that Asia-Pacific airlines had the smallest lift of any region in its most recent international air traffic data (January, 2022). International traffic was up 124.4 per cent over the same month in 2021 (off a very low base), whereas the lift was 225 per cent for European carriers.

Ed Sims former president and chief executive of WestJet in Canada. Photo / Supplied

Sims expects that New Zealand will struggle to attract many of the international carriers which previously serviced routes here; New Zealand is a distant destination at the best of times, and the high price of fuel is likely to exacerbate the high cost, especially as airlines move from efforts to attract back large volumes of travellers to efforts to return to profit.

While recent news that Air Canada will revive its Auckland to Vancouver route starting in November is welcome, Sims points out that New Zealand is now served by roughly 13 international carriers, whereas before the pandemic that count was close to 30.

Sims also called the Government's determination to move to more "high-value" tourists a "double whammy".

"A high-value-only customer policy is an admirable intent in good times, but these are wicked times and the hospitality, service, and transportation industries have to value cash more than margin in times like these. Because accounts payable are still going out the door and the accounts receivable aren't coming in. So cash generation and cash flow is critical," he says.

Despite running an airline, Sims has struggled, like so many others, through the lack of travel in the pandemic.

While he, his wife, and their youngest son, still at school, were based in western Canada, the couple's two older children – a son at the University of Auckland and a daughter in her twenties working in the NZ Police – remained in New Zealand.

Last June, Sims made public his plans to leave WestJet and reunite the family; he then spent "25 hours sitting on a PC" to secure an MIQ slot to come home (it was before the closure of the transtasman travel bubble which sent demand for MIQ soaring).

From his Auckland perch, he now has an eye out for investments. Working for WestJet, Sims managed the airline through a friendly C$3.5 billion (NZ$4.1b) buyout by Canada's Onex Corporation in 2019. He remains an adviser to Onex, a private equity firm with acquisitions in mind.

His remit is to search out good businesses across Asia-Pacific, including New Zealand. He says Onex has the capability to raise both equity and debt "for the right opportunities of scale". Crisis, the old adage has it, always goes hand in hand with opportunity.