New Zealand tourism surges, prompting expansion from Air NZ

Air New Zealand aims to continue rapid capacity expansion in response to strong inbound tourism growth.

Visitor numbers to New Zealand were up 12% in 2016 to 3.50 million – marking the first double digit gain in more than a decade. For the fiscal year ending Jun-2017 (FY2017) visitor numbers were up 10% to 3.65 million.

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Air New Zealand’s passenger numbers for FY2017 were up 5.2% to 10.4 million. The airline group grew capacity, as measured by ASKs, by 6.3% in FY2017.

All three segments grew rapidly with domestic ASKs increasing by 8.8%, short haul international ASKs (includes Australia and South Pacific destinations) increasing by 5.3% and long haul ASKs increasing by 6.1%. Within the long-haul operation, Asia was up 6.8% and the Americas was up 5.7% (includes London, which is served via Los Angeles).

Air New Zealand is planning to continue growing capacity at a rapid clip over the next several years in response to booming demand. Inbound tourism growth is the main driver but Air New Zealand also expects growing outbound demand to generate more transit traffic, including in the Australia-Americas market.

Air New Zealand CEO Christopher Luxon told Blue Swan TV on the sidelines of the 1-Aug-2017 CAPA Australia Pacific Aviation Summit in Sydney that New Zealand “is really on a big growth trajectory for the next 30 years. What we are seeing is lots of opportunity to strengthen and add capacity.”

“We are having big, big growth in tourism,” Mr Luxon added. “Tourists coming to New Zealand is up over 10%. We have a big growth in migration coming into the country as well and we have a very vibrant economy in New Zealand. All that’s leading to our position where New Zealand is becoming more muscular, more stronger and that’s why we’ve added more capacity.”

Air New Zealand has been adding capacity in most of its international markets including in its two largest markets – Australia and the US. Australia and the US account for 62% of Air New Zealand’s international seats and 54% of its international ASKs, according to CAPA and OAG data for the week commencing 21-Aug-2017.

Australia and the US along with China are the three largest source markets for New Zealand’s tourism industry. Australia visitor numbers to New Zealand increased by 6% in FY2017 to 1.45 million and US visitor numbers surged by 26% to 325,000. Chinese visitor numbers were flat in FY2017 at 398,000 but more than doubled over the four previous years.

Air New Zealand has been able to grow in Australia and the Americas by pursuing more sixth freedom transit traffic beyond Auckland. Mr Luxon pointed out that Australians account for more than 40% of passengers on the Auckland-Buenos Aires route and more than 20% of passengers on the Auckland-Houston route. Air New Zealand began serving Buenos Aires and Houston in late 2015.

Air New Zealand also has been growing in the domestic market, which benefits from the overall growth in tourism as visitors typically fly around the country. Air New Zealand is particularly encouraged by recent initiatives to promote tourism in regional destinations. The group carried 10.4 million domestic passengers in FY2017 compared to 4.6 million international passengers.

Air New Zealand has been impacted by intensifying competition in both the domestic and international markets. Jetstar has been expanding rapidly in New Zealand’s domestic market over the last two years by launching services on several regional routes using a new turboprop fleet. Meanwhile several foreign airlines have entered the New Zealand market with new international routes.

Air New Zealand’s average yield, as measured by revenue per ASK, dropped by 6.4% in FY2017 due to the intensifying competition. However, the flag carrier remains optimistic about its outlook.

As demand for travel to, from and within New Zealand continues to increase, the market should be able to absorb capacity increases from Air New Zealand as well as foreign competitors.