Air New Zealand's new Christchurch-to-Perth route is to service the increasing number of New Zealanders working in mines in Western Australia, chief executive Nikhil Ravishankar says.
This week, the airline announced three new international routes out of Christchurch to Singapore, Tokyo and Perth. It came just three weeks after it announced further flight cuts on regional routes.
Ravishankar told RNZ's Nine to Noon programme today the new routes made sense based on current fuel prices. He was confident they would stay but that would depend on future fuel cost.
Defending the new routes at a time of reduced services elsewhere, Ravishankar said the cuts had not been just to domestic routes.
"We have had to consolidate flights to reduce the impact of the fuel price shock across all our network. That said, we also have growth coming. The much-documented and discussed engine issues, we are starting to see the light at the end of that tunnel.
"Tourism is a very important part of the New Zealand economy and so as I often say internally, we have to walk and chew gum."
Even if high fuel costs continued, it still made sense to expand these international routes, he said.
"We think it makes sense given the current state of the fuel price market but those markets are extremely volatile so there is always a threshold beyond which we would have to revisit and think about all our decisions. But if we stay within the current price range, we think that these decisions still make a lot of sense for us.
"Like everyone else, we are hoping for the crisis to end and fuel prices to start returning to as close to normal as possible."
Profit was not the only criterion for launching a new service, he said.
"There is a lot that goes into our network planning. Demand is a key driver, but not just short-term demand. We do have to look at making sure we establish connectivity and maintain it in the long run.
"We take into account the short-term demand supply environment; we take into account what we believe the forecast in the long term looks like; we work with a lot of stakeholders around trade and tourism and business travel.
"We put all those things together and try to make sure we have the right network, and when we think of the right network we are thinking about it in the context of this airline's reason for being, which is to connect New Zealanders to each other and New Zealand to the world. And that is the lens through which we view a lot of these decisions."
He sees strong inbound demand continuing from the United States, Asia and beyond, with visiting New Zealand on everyone's bucket list.
"Everyone wants to come and visit us, and that's a good problem to have. That demand is strong but we are going into our shoulder season of August to October when demand starts to get suppressed before we build back up to the summer peak."
Part of the reason for the demand was explained through currency exchange rates, he said.
"The Americans feel like they get a lot of value for money visiting us. Equally, us travelling to a place like Japan is very strong and I think again currency plays a part - the New Zealand dollar goes a long way in Japan."
Generally though, outbound demand from New Zealand and for domestic travel was where "we are seeing a lot of softness".
The new Perth route was intended to meet demand from New Zealanders flying in to work in the mines of Western Australia and flying home again in typically two weeks-on, two weeks-off shifts. That market was bigger now than the "golden triangle" of the Brisbane / Sydney / Melbourne route, which was one of the densest air travel corridors in the world.
"We're seeing a lot more Kiwis working in the Western Australian mining industry and this route will support their commute essentially."
Pressed on whether the airline's Pacific routes were under threat, Ravishankar said his team was working hard to make sure no routes were cut all together "so what we are trying to do is manage the frequency of those routes so we don't fly half-empty planes but burn the same amount of fuel.
"So, our consolidation is very much focused around fuel conservation. With that as the basis, we are ensuring we only consolidate those flights where demand is already depressed.
"We've consolidated flying up to 5 percent domestically on all our short-haul and long-haul networks. As we go into our shoulder season, we are starting to look at what frequency reductions we can make to the Pacific as well but what we are not doing is looking at cutting routes at this stage."
Looking ahead, Ravishankar said the picture was a lot more volatile and uncertain than it has ever been.
"So, as we think about a strategic reset, we are looking at it through the lens of what does aviation mean to New Zealand and it means a lot to a country like ours for obvious reasons. We are actually quite a sparsely populated, hilly country and it is no surprise that we have one of the densest domestic networks in the world. We fly to 20 ports around New Zealand and we are far away from everywhere else.
"I explain to my European and American colleagues that if you drew a 2000km radius around Auckland you wouldn't hit the east coast of Australia but if you did the same around Berlin you would cover the whole of eastern Europe, northern Europe, the northern part of Africa and into western Russia.
"We are not as close a next-door neighbour to Australia as the world might think, we are far away from everywhere else, so aviation matters a lot for us. There is a need for this country to have a world-class airline and we as stewards of the business need to make sure that we build it."
Announcement soon on more cuts
On future cost pressures, Ravishankar said such things as spare parts were likely to continue to increase "but fuel I think is tied in very much with the [Middle East] conflict". An announcement on another round of domestic consolidation would come soon.
He denied that the regions had been bearing the brunt of its measures, with cuts to those flights similar to those for the cities and to the Pacific and North America.
"What we are trying to do is make sure those are as minimised as possible, that we are giving our customers very early signals about what the network is that we will be flying, and making sure we reaccommodate our passengers even through the next round on the same day."
Fare increases were not expected for August to October.
"Affordability is a real challenge and so one of the reasons consolidation is the lever we need to pull is that raising fares is not an option in a lot of our markets. Hence why at this stage we are only recovering 40 percent of the increased price of fuel."
Ravishankar was confident of a return to profitability for the airline, which has signalled a loss for this year.
"We will talk about that as we come out with the new strategy and we will share that with our stakeholders. We are engaging a lot of stakeholders as we are developing that. And we are only a few months away from being able to go into a bit more detail on that."
He said the tourism product that Air New Zealand took to the world was world-class.
"The demand for it is great. We are a trading nation; there are a lot of us who fly for a living. There's a lot of our exporters using air freight to get their goods to the right markets. The future is very, very bright and we are bullish about what that looks like. But we also know the future is volatile, so a lot of the strategy is about building resiliency into the airline."
This story was first published on rnz.co.nz |  |
