How New Zealand’s regional airlines are filling in network gaps – but corporate contracts may remain elusive

New Zealand’s regional airline network is expanding as it emerges from a period of uncertainty following changes to Air New Zealand’s regional operations in recent years.

Just over a year ago, in Aug-2016, Air New Zealand’s smallest regional subsidiary, Eagle Air, ceased operations with the retirement of its 19-seat Beechcraft B1900D fleet. The decision to close the regional operator down was originally announced in Nov-2014, with the airline’s operations gradually shut down through to Aug-2016, after the carrier was reportedly losing NZD1 million per month across its Eagle Air operations.

Some of Eagle Air’s profitable routes were taken over by fellow Air New Zealand subsidiary Air Nelson, which operates a fleet of 50-seat Bombardier Q300 aircraft. These routes included Wellington to Blenhiem, Palmerston and Timaru. However, many services were suspended including: Auckland to Hamilton, Kaitaia, and Whakatane; Wellington to Taupo and Westport; and Palmerston North to Nelson.

These changes left some noticeable gaps in New Zealand’s regional airline network, offering an invitation for smaller players in the market to fill.

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How have other regional operators responded?

Air Chathams: Air Chathams’ New Zealand domestic operations are based in Auckland from where it operates three 19-seat Fairchild Metroliner III and one 34-seat SAAB 340A aircraft. Following the withdrawal of Air New Zealand’s Auckland-Whakatane and Auckland- Whanganui services, Air Chathams launched its own services on the routes in 2015 and 2016 respectively.

Barrier Air: Barrier Air is based in Auckland from where it mainly operates services to Great Barrier Island using a fleet of three aircraft (one 9-seat Britten-Norman Islander, one 12-seat Cessna Grand Caravan, and one 5- seat Partenavia P.68). Following Air New Zealand’s suspension of Auckland-Kaitaia service in April 2015, Barrier Air launched its own service on the route.

Jetstar: Jetstar’s regional New Zealand operations are based in Auckland. Like Air NZ’s Air Nelson subsidiary, Jetstar also operates a fleet of five Q300 aircraft. It directly competes with Air New Zealand on key regional routes, but due to its business model and fleet size, probably won’t move into smaller routes that Air NZ has already deemed unprofitable to operate.

Originair: Originair is based in Nelson and operates a fleet of three 18-seat British Aerospace Jetstream aircraft (1 x Jetstream 31 and 2 x Jetstream 32). The airline launched services in 2015 with Nelson-Palmerston North as its sole route. It is doubling its network this year with the addition of eight times weekly Nelson- New Plymouth from 29-Sep-2017.

Sounds Air: Sounds Air is based in Picton, operating a fleet of 10 aircraft including five 12-seat Cessna Caravans and five 9-seat Pilatus PC-12 aircraft. Following the withdrawal of Air NZ’s services from Wellington- Taupo and Wellington- Westport in 2015, Sounds Air took over the routes. In addition, Sounds Air is competing directly with Air NZ on Wellington-Woodbourne and Wellington-Nelson. Sounds Air also operates services from its home base Picton Aerodrome-Wellington and since the Nov-2016 Kaikoura earthquake, has been operating temporary services from Kaikoura-Woodbourne and Kaikoura-Christchurch.

What next for New Zealand’s regional airline network?

In the next couple of years Air New Zealand will need to decide on the replacement of its Air Nelson Q300 fleet.

Depending on whether it continues to operate with a similar sized aircraft, or perhaps upgauge all its regional services to ATR aircraft in line with fellow Air NZ subsidiary, Mount Cook Airline, this could further impact on New Zealand’s regional services.

In addition to the Q300 fleet replacement question, some existing routes operated by Air Nelson are potentially over-served with 50-seater aircraft. One example of this is the WLG-PMR route which was previously served twice daily using 19-seat B1900D aircraft. This route is no longer served on weekends now that it is operated using Q300 aircraft. Routes like this could pose an opportunity for another carrier operating more appropriately-sized aircraft for the demand on the route, to step in.

Corporate travel under the New Zealand Government’s All-of-Government (AoG) is another key issue: whether Government traffic (from the public service and wider state sector) will support these regional routes.

As of 01-Mar-2017, the AoG Air Travel Services contract supports Government workers to travel with Air NZ, Jetstar, Sounds Air and Sunair (a small operator from Tauranga) on domestic routes in New Zealand.

This leaves out other carriers such as Air Chathams, Barrier Air, and Originair, who have all filled routes previously operated by Air New Zealand. The term of this contract is through to 28 February 2021.

Until this time, small regional players will need to depend on local support for these routes. There could also be room for these carriers to partner with larger international carriers operating into New Zealand to act as feeders to their services, whether through a codeshare or interline agreement.

It will also be a waiting game to see what Air New Zealand’s future regional network strategy will be in the coming years, and whether there will be further opportunities for smaller regional players to expand their operations. Much of this decision making will depend on the level of penetration by these smaller airlines and their potential affiliations as the routes develop.