Air New Zealand chief executive Christopher Luxon says the airline’s recent capacity growth is being absorbed by a booming tourism market.
The Star Alliance member commenced two new long routes to Buenos Aires and Houston in December as part of a 24 per cent increase in available seat kilometres (ASK) on its international network in the half.
Closer to home, ASKs across the Tasman and to the Pacific Islands were seven per cent in part through the use of more widebody aircraft.
And figures from Air NZ’s first half results presentation showed that additional capacity was meeting demand in the market, with load factors on Tasman and Pacific island services up 0.6 percentage points to 83.8 per cent in the half, while they rose 0.7 percentage points to 86.1 per cent on its international network.
And there is more capacity to be added in the current half, with a seasonal service to Ho Chi Minh starting in June as part of an overall seven per cent boost to ASKs for the six months to June 30 2016.
Luxon said Houston and Buenos Aires had made a positive contribution to the Air NZ network “from day one”, while inbound tourism to NZ had growth 10 per cent in the year to December. The Air NZ chief executive added the airline brought in four in every 10 visitors to the country.
“Tourism clearly is booming in this country and Air NZ is participating in that tourism growth,” Luxon told reporters during Air NZ’s first half results presentation on Thursday.
“We are digesting this growth really well.”
The rise in NZ tourism has also brought with it competition in the form of new entrants into the market, such Emirates’ planned Dubai-Auckland service to kick off in March and American’s entry onto the Los Angeles-Auckland route, currently only served by Air NZ, from June.
There have also been new operators into NZ from China, while the likes of AirAsia X, Philippine Airlines and Singapore Airlines (from September) have joined a crowded field of fifth freedom operators between Australia and NZ.
Luxon said the Air NZ, with its simplified fleet of fuel efficient aircraft, “ruthless” focus on maximising revenue and reducing costs, was well placed to meet the challenge from other carriers.
“We are handling competition well. Air NZ has a great strategy that serves it well,” Luxon said.
“Air NZ is a fantastic street fighter.”
In terms of the Tasman, which Air NZ serves as part of an alliance with Virgin Australia, Luxon said tourist arrivals from Australia to NZ were growing by 6-7 per cent and Air NZ had the capacity to meet that demand.
“Australia remains a very big tourism market for New Zealand,” Luxon said.
“It’s important that we’ve got that capacity there that links in with that tourism growth.
“I’m very comfortable with where we sit with yields in general across the business and certainly across the Tasman as well.”
Yields, an industry measure of average airfares per passenger, across the network were down 1.1 per cent in the half.
Luxon said fifth freedom operators posed little threat, given the depth of Air NZ’s superior schedule, network and product both on the ground and in the air.
“We don’t feel particularly threatened by the fifth freedom guys in part because they really struggle with schedule,” Luxon said.
“We are doing and competing incredibly well on the Tasman.
“We expect the fifth freedom guys to keep coming and that is just a consequence of the capacity that has been pouring into Australia from international carriers and all they are trying to do is recover some cost.”
On the domestic front, Jetstar commenced Q300 turboprop operations in December 2015 serving regional centres, bringing competition to routes previously only served by Air NZ.
Although Luxon acknowledged it was still only early days, he said Air NZ was in “good shape” in the regional market.
“It hasn’t impacted us as much as we had anticipated to be honest. Maybe it is just a bit too early to see,” Luxon said.
“The bottom line is our competitors got off to a pretty poor start. I just look at last week I think on time performance and reliability was 20 points lower than what Air NZ was doing in regional New Zealand.
“We just have to keep the regional piece in a bit of perspective. From a domestic point of view it is four aircraft versus Air NZ’s 50 turboprops in regional NZ and we obviously have a superior lower cost aircraft as well.”