Air NZ ditches 7 domestic routes, flags $300M on new planes

Air NZ ditches seven domestic routes, flags $300 mln on new regional fleet

By Suze Metherell

Nov. 11 (BusinessDesk) - Christopher Luxon chief executive of Air New Zealand has told customers the national carrier will stop service on seven of its domestic routes because of the cost of maintaining the regional fleet, while flagging a $300 million investment in new aircraft.

The airline will no longer operate out of the Kaitaia, Whakatane or Westport airports, as the cost of maintaining its 19-seat aircraft fleet has cost more than $1 million a month over the past two years, the Auckland-based airline told its airpoints customers in an email. Still, it had plans to boost capacity to other regional airports buying 13 aircraft for $300 million.

The abandoned routes between Auckland to Kaitaia and Whakatane, Wellington to Whangarei, Taupo and Westport, and the Palmerston North to Nelson service will end in April next year, while the Auckland to Hamilton service ending in February 2016.

"We've been carrying these losses while working with many regional stakeholders to improve the viability of these services, but despite best efforts, some routes are simply not sustainable," Luxon said in the email. "In addition route withrawals we will be progressively winding down our 19-seat fleet and moving the remaining destinations to larger 50-seat aircraft requiring an investment of $300 million in 13 new and more efficient regional aircraft."

In August, the New Zealand Airports Association called on the Commerce Commission to regulate the airline's regional fares, where the national carrier has an effective monopoly, after it announced a 45 percent uplift in annual profit to $262 million, its third consecutive year of earnings growth.

Domestic routes between the major centres, such as Auckland, Wellington and Christchurch, are often discounted, but the NZ Airports Association says regions are right to question whether provincial routes are generating excessive profits.

Prime Minister John Key also said in August he had told the airline it should lower regional airfares if it could, and was supported by then Commerce Minister Craig Foss, who oversaw competition law.

"I am conscious that Air New Zealand has recently been challenged on the cost of its regional airfares even though the average regional airfare has not increased in the past five years," Air NZ's Luxon said in the email.

In September, speaking at the airline's annual meeting in Christchurch, Luxon told shareholders regional airline economics were "very challenging" and will always be more expensive as smaller aircraft operate at a higher cost per seat.

Citing unidentified independent research, Luxon said Air NZ covers every town with a population of more than 20,000, compared to just half of similar-sized towns in Australia, Canada and Sweden having air services. The same study showed New Zealand has the cheapest like-for-like regional fares. Australia came in second with prices 29 percent higher.

Shares of Air NZ rose 0.7 percent to $2.095 and have gained 26 percent over the past 12 months.

(BusinessDesk)

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