Crunch time for airlines nears despite easing of New Zealand border rules

Airlines are looking for certainty as soon as possible aboutNew Zealand’s reopening plan for overseas visitors as the aviation and tourism sectors face a renewed risk to recovery – soaring fuel prices.

The move to allow vaccinated Kiwis to skip self-isolation this week is a critical milestone for many airlines still operating here and they allowed themselves a rare celebration to mark it last night in what an industry leader says is a ”massive moment” following what has been two years of pain.

Home ground carrier Air New Zealand – with its big Kiwi customer base and network already being rehabilitated – will be the big immediate beneficiary of the move but the Board of Airline Representatives says the announcement could come just in time for its other members.

Airlines are right now preparing business cases for routes later in the year and board executive director Justin Tighe-Umbers said the signals sent by the Government were the right ones.

”We can see we’re following [the] international playbook of all the other countries that have opened up after Omicron. So I do think that willgive them some confidence that we will be in opening up and opening up soon.”

While the Government this week has said it wants to bring forward opening up of the country to all nationalities from previously set July and October dates, Tighe-Umbers said a declaration on not walking back border relaxation was needed.

”Short of a new variant this would be a good move to make. I think there would be an easy enough signal to send and certainly be welcome for airlines.”

Auckland is the main gateway for arrivals and before the pandemic 29 international airlines had passenger services to and from the city but that is down now to 2020, that number is now 12 airlines.

He said airlines will start to build more regular services again, but it is obvious that it is going to take some time. This week with MIQ-free flights starting there are only 45 flights from Australia this week, whereas pre-Covid there were 330 a week.

The impact of Russia’s invasion of Ukraine on already elevated oil prices was another geo-political blow the airline industry didn’t need, said Tighe-Umbers

Late last week jet fuel prices were up US$111($163) a barrel, up nearly 60 per cent on a year ago and threatening to go higher as Putin’s war escalates.

”When you have fuel pay $100a barrel and going north of there, there’s more headwinds in place,” said Tighe-Umbers.

Fuel is after labour the highest expense for airlines and New Zealand lay at the end of some of the longest and most costly to operate.

This increased the need to give airlines as much certainty as possible about the New Zealand operating environment, he said.

Air New Zealand is putting up international fares by 5 per cent to cover rising fuel and other costs.Last week the airline reported a 19 per cent increase in the fuel prices to $174m in the latest six months compared to the prior period and Qantas said its fuel bill had increased by 53 per cent to A$474m ($508m).

Tighe-Umbers said airlines would be hedged against fuel price increases to varying degrees and had creative ways of navigating other cost rises but they came as New Zealanders’ confidence in travelling was dented by the Omicron outbreak and inflation would hit discretionary spending on travel.

”Airlines are used to managing volatility. I think the issue is at the moment it comes rightat a time right when they’re working to recover their balance sheets.”

Air New Zealand has forecast an $800m pre-tax loss for the full year and plans to launch a $1b-plus capital raise within about a next month to shore up its balance sheet.

Tighe-Umbers said in spite of more passengers flying into New Zealand theMaintaining International Air Connectivity (MIAC) freight scheme for airlines should be extended beyond a planned cut-off date at the end of the months.

So far during the pandemic airlines have claimed more than $700m to help make cargo flights economic and the scheme has prevented some from quitting this country as some flights have carried just a handful of passengers. The Government is due to make a call on the scheme shortly.

'Outward thinking squashed'

The Tourism Export Council of New Zealand (TECNZ) says it is “thrilled” with the Government’s decision on removing self-isolation but said it was only a start.

“For Inbound Tour Operators’ offshore travel partners (tour wholesalers and travel agents) there’s still a level of nervousness. Will the intentions of the Government be realised? There’s not quite enough certainty yet for ITOs to secure the bookings in the system to protect the international 2022-2023 visitor season,” said chief executive Lynda Keene.

Timing would be critical. Any notification later than April could put the recovery of the $17.5b international visitor industry at risk.

Operators and offshore travel partners work 12-24 months in advance.

“Our normal booking window is from March-May each year for the upcoming October-April visitor season. It is vital we protect bookings currently in the system. If we wait too long to announce visitors can come to NZ without self-isolation, we may lose a significant opportunity to launch the tourism recovery,” she said.

Australia was fully open and strong competition for global travellers who tend to only come Downunder once every five to 10 years.

”We appreciate the Government’s caution to not state dates for visitors to return without self-isolation as we progress through the Omicron cycle. We hope the Government will keep its focus on its future decisions that are going to enable NZ’s international tourism recovery, not constrain it. Demand is high at the moment,” she said.

”New Zealand needs to reclaim the outward thinking, confident, adventurous spirit that for many has been squashed over the past two years. That’s who we are.’

A council survey in February showed many businesses will not last till July 2022 without financial support.

There would be more confidence (and a lot less mental stress and anxiety) within the industry if the Government was to approve a targeted international tourism resilience package ”to help businesses get to the starting gate, whatever that date might be,” said Keene.

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