Air New Zealand adds capacity to Houston despite intensifying competition

Air New Zealand is adding frequencies on Auckland-Houston, resulting in more overall capacity next winter despite down-gauging the route from 777s to 787s. The additional capacity comes as competition intensifies in the South Pacific-US market with the launch of flights by Star Alliance partner United from Sydney to Houston.

Air New Zealand launched services to Houston in Dec-2015, with five weekly 777-200ER flights. Air New Zealand decided in Mar-2016 to upgrade the Auckland-Houston route to a seasonal daily service during peak summer months. It operated seven frequencies from early Dec-2016 to early Feb-2017, before reverting back to the current schedule of five weekly frequencies.

Air New Zealand is again offering seven weekly seasonal frequencies to Houston for the upcoming peak summer season from early Dec-2017 to early Feb-2018. It also announced in May-2017 that the Auckland-Houston route would transition to new 787-9s from early Dec-2017, coinciding with the already planned seasonal increase from five to seven frequencies.

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Air New Zealand announced on 10-Oct-2017 a further upgrade of the Auckland-Houston route with the addition of one to two weekly frequencies next winter. The additional frequencies will be offered from late Mar-2018 to late Oct-2018 – which is the entire southern winter schedule – and result in six or seven weekly flights depending on the week.

Air NZ said the additional flights will result in 16,000 more seats for the Houston market. The plan, at least for now, is to still operate five frequencies during the off-peak shoulder seasons – from early February to late March and from late October to early December.

Air New Zealand will use its new 787-9 configuration on the Auckland-Houston route from 8-Dec-2017, offering 27 business class seats, 33 premium economy seats and 215 economy seats. Air New Zealand took delivery of the first 787-9 in the new lower density 275 seat configuration on 9-Oct-2017 and its three outstanding 787-9 orders will also be delivered in this configuration.

Air New Zealand has nine 787-9s in the original higher density 302-seat configuration. These aircraft have only 18 business class seats and 21 premium economy seats but has a larger economy cabin with 263 seats.

Air New Zealand’s 777-200ERs are larger and have 312 seats, including 26 in business, 40 in premium economy and 246 in economy. Therefore, Air New Zealand’s total capacity per flight on the Houston route will decrease by 12% when the 787-9s are introduced. Business capacity will increase by 4% per flight, while premium economy capacity will decrease by 21% and regular economy capacity will decline by 13%.

However, overall capacity will be up during the winter season as a result of the additional frequencies. Annual capacity will also be up slightly as the growth in annual frequencies is slightly higher than the 12% capacity decrease per flight.

The decision to add more capacity to Houston comes despite United’s recent decision to launch flights from Sydney to Houston in Jan-2018. Air New Zealand now relies heavily on Australia passengers, including Sydney, to fill up Auckland-Houston flights. The airline has previously stated that Australians account for more than 20% of traffic between Auckland and Houston. Air New Zealand will inevitably lose some Australia-Houston traffic after Star Alliance partner United launches Sydney-Houston.

See related report: United Airlines to grow in Australia for first time this century following Sydney-Houston launch

Air New Zealand has a joint venture with United in the New Zealand-US market, which covers its Auckland-Houston route and United operated connections beyond Houston. However, the joint venture excludes Australia and adding Australia to the JV is unlikely due to competition authority issues. United and Air New Zealand therefore now compete for Australia-US passengers and this competition will intensify after United adds Sydney-Houston to its exiting Sydney-Los Angeles, Sydney-San Francisco and Melbourne-Los Angeles routes.

However, Air New Zealand seems confident it will fill any void left by the loss of Australia-Houston traffic to United with local New Zealand-US traffic given the recent rapid growth in the New Zealand-US market. US visitor numbers to New Zealand increased by 20% in 2016 to 291,000 and by 21% for the 12 months ending August 2017 to 321,000.

Competition in the local US-New Zealand market has intensified over the last year due to the launch of flights by American and United. American and United now operate seasonal services to Auckland from Los Angeles and San Francisco respectively.

See related report: New Zealand-US capacity to reach record highs this summer as tourism booms

Air New Zealand also serves Los Angeles and San Francisco, which remains by far the largest US gateways for New Zealand-US traffic. However, the Houston flight gives Air New Zealand a competitive advantage for serving Texas and the eastern US. Connections from Auckland to the US east coast are generally faster via Houston than via Los Angeles or San Francisco.

While California residents account for approximately one quarter of total US visitors to New Zealand, Texas is the second largest source market and accounts for 7% of total US visitors New Zealand. Texan visitor numbers to New Zealand increased by 21% in the 12 months ending 2017 to 21,000, according to Stats NZ. Visitor numbers from Texas have nearly doubled since the Auckland-Houston flight was introduced.

New York and Florida are the third and fourth largest source markets in the US for New Zealand’s tourism industry. Both are well served via Houston. New York visitor numbers to New Zealand were up 25% in the 12 months ending Aug-2017 to 19,000 and Floridian visitor numbers were up 19% to 16,000 (based on state of residence).