Air New Zealand has unveiled the outcome of a comprehensive review of its regional aircraft operations aimed at delivering what it claims are sustainable air services while providing lower prices for customers. Its new strategy will see the retirement of the Eagle Airways fleet of Beech 1900Ds and a focus on the larger 50-seat Dash 8-Q300s of Air Nelson and 68-seat ATR 72-500s and ATR 72-600s of Mount Cook Airlines.

Since the start of this year the airline has had a team looking at how to address the challenges of the poor operating economics of its 19-seat fleet while at the same time leveraging the significant economies of scale available from its 50- and 68-seat fleets.

The 19-seat Beech 1900Ds are the smallest in the Air New Zealand Link regional fleet but has the highest cost per seat to operate because the fixed costs of operation are distributed across fewer passengers. “This has led to Eagle Airways, which operates the 19 seat fleet, losing $1 million per month for the past two years, or the equivalent of $26 per one way passenger journey,” said Christopher Luxon, chief executive officer, Air New Zealand.

“Our average regional airfare has fallen by two per cent over the past five years and this announcement will keep further downward pressure on regional airfares. On the 13 routes which will move from 19-seat aircraft to more cost effective 50-seat aircraft we expect to deliver a 15 per cent average fare reduction to our customers.”

Christopher Luxon
CEO, Air New Zealand

Through the review it has become clear there are some regional routes where demand for seats is strengthening and can support the introduction of larger capacity aircraft, according to Luxon. “Air New Zealand has already begun putting more seat capacity into those markets and is announcing an acceleration of that process with an additional $100 million investment in four new 68-seat {ATR 72-600 turboprop] aircraft,” he added.

This brings total investment in new ATR 72-600 aircraft to $300 million over four years and will mean that Air New Zealand will move all regional flying to either 50 or 68 seat aircraft and exit its 19 seat fleet by August 2016.

“Our average regional airfare has fallen by two per cent over the past five years and this announcement will keep further downward pressure on regional airfares. On the 13 routes which will move from 19-seat aircraft to more cost effective 50-seat aircraft we expect to deliver a 15 per cent average fare reduction to our customers,” said Luxon.

According to a revised schedule Air New Zealand will grow its existing flights to Kerikeri, Whangarei, Tauranga, Hamilton, Rotorua, Gisborne, Taupo, Wanganui, Palmerston North, Blenheim, Hokitika and Timaru progressively to the Dash 8-Q300 over the coming 20 months. However, there are some regional routes where customer demand simply cannot sustain larger 50 seat aircraft, according to the review.

Therefore, Air New Zealand has made the disappointing decision to suspend operations on seven routes: Kaitaia – Auckland; Whakatane – Auckland; Whangarei – Wellington; Taupo – Wellington; Westport – Wellington and Palmerston North – Nelson from April 2015 and Hamilton – Auckland will from February 2016. As Kaitaia, Whakatane and Westport are single route ports, the suspension of these services means Air New Zealand will no longer operate to these destinations from next spring.

“While today’s news will be disappointing for some communities, Air New Zealand remains resolutely committed to regional New Zealand and the changes announced today will set up our regional business model for future sustainable success,” explained Luxon.

Alongside the route closures it will also likely see the close of the Eagle Airways business with the revised focus on the operations of Air Nelson and Mount Cook Airlines with the larger turboprop equipment.

“I also acknowledge this news is disappointing for Eagle Airways’ staff. Eagle Airways management, staff and unions will now begin a process of determining the future of the business. The airline has 232 employees and there are good redeployment opportunities across a rapidly growing Air New Zealand Group,” added Luxon.