Jetstar consults personnel about their intention to withdraw from the regions from December 1 after four years of losing money. What led to this and how did it affect domestic aviation?
New Zealand domestic flights are a difficult matter
This country is dotted with airlines that have released it and failed, and routes that they just don't pay.
In particular, Air New Zealand has resisted Ansetta, Pacific Blue's domestic operations and as a farewell gift to former Kiwi carrier Christopher Luxon, the regional operation of Jetstar.
• Filling the gaps
In 2015, Air NZ was disclosed he lost a million dollars a month on routes, which he then aimed. It is an airline with about 80 percent of the domestic market, a solid loyalty base, a large fleet and significant infrastructure.
On some routes he competed with cars; otherwise, the 19-seat aircraft he operated in some places was not economical and required replacement.
A study commissioned by the Ministry of Transport published in 2016 showed that planes with less than 10 seats cost USD 134 per hour, 10-20 seats for USD 121 per hour, and those with more than 20 seats, USD 95 per hour.
At the annual shareholders' meeting this week, Luxon said that on loss-making routes each fare costs its airline $ 52.
Airlines are becoming more "rational" (ie tricky), especially Air NZ. Since then, this has not resulted in good results for Kaitai, Whakatane and Westport and Kapiti. It never worked.
So the Qantas Group decision to deploy five Bombardier Q300 aircraft in four regional cities from Auckland and Wellington was a bold decision.
Planes belonging to Eastern Australian Airlines were sitting on Outback waiting for work, and the decision to arrive here was made when Qantas was closed in a battle with Air NZ to support the Kiwi carrier for Virgin Australia in Aussie's home patch.
In mid-2015, with some fanfare, the head of Qantas Alan Joyce, followed by the head of Jetstar Jayne Hrdlicka, started with a regional push at the briefing, which received the seal of the Prime Minister of the Day Sir John Key (who was also the Minister of Tourism) and welcomed the influence of Australians on the opening country and reduced fees.
Four centers were seen as just the beginning, but Air NZ did not intend to roll over and let a large competitor grow under his breath. With the help of price levers, he made sure that this did not happen, and four years later Jetstar finally threw down the towel.
Qantas is four times the size of Air NZ, as well as an extremely rational airline, and the fact that it hung there for so long shows how badly it wanted to make it work. But losses from the premiere (including USD 20 million last year) finally said.
Jetstar's new head, Gareth Evans, said the airline gave him a "hot start." Regional airlines started with just five planes – one-tenth the size of Air NZ in the regions – and it effectively fell to three because flight schedules were shortened.
Air NZ's domestic operations also have a huge advantage. At their core lies the business and government travel market, which is closely guarding and responsible for about half of its revenues.
This is something that Jetstar, despite obtaining the right to fly government officials, is fighting for crack.
In the case of Jetstar, regional operations accounted for less than 20 percent of the area in the country – the majority of revenues come from jet services, which will continue. Asked if he was too thin, Evans said, "We always knew it would be a challenge."
There is one big message here – to start flying around the regions, you need very deep pockets and patience.
An advantage on the pitch always helps, but does not necessarily help local third-level players.
Carriers such as Air Chathams and Sounds Air have developed their network because Air NZ has withdrawn from some areas, but will not jump to routes that have left Jetstar. Third-level airlines try to avoid direct competition with routes served by Air NZ – they do not have the scale or frequency to compete effectively.
This is bad news – for almost everyone
About 70 employees are currently facing an uncertain future. They are consulted on their roles, and Jetstar says there are about 50 jobs they could fill until the end of their business.
E tū claims that it has about 20 crew members, and the unexpected announcement was disappointing and job losses are likely to occur. Pilots say it's disturbing.
After the announcement, some employees were unable to work because they had absorbed the messages and could not fly, which means that there was an appeal.
About 20,000 passengers have reservations after December 1, and Jetstar has offered a full refund, waived the fee for changing the date of travel, and Air NZ has introduced fees for $ 50 on the affected routes. But among those whose travel plans are thrown into the air, there is anxiety.
Airlines – or in this case one operation – fail at an alarming frequency, but not so often in this part of the world.
Small print on the tickets is a cover, but it is cold comfort. Already, customers are complaining that alternatives do not limit it.
Jetstar's reputation will be a hit. "We don't and we don't," says Evans. "I hope consumers see this [was] – a real attempt to bring competition to these markets.
"I think people will understand that you can't lose forever."
Qantas was frustrated by New Zealand's public attitude. Travelers say they love Jetstar's presence, but they didn't fly with it enough to the regions.
Joyce said last year that "the best way to ensure vitality is for all communities to withdraw and support." It wasn't enough. There will also be airports. They invest a lot of infrastructure in the regions.
One of Jetstar's locations, Hawke's Bay, is approaching the end of the $ 20.2 million expansion, while Nelson has just opened a $ 30 million terminal. This type of investment was not linked to several Jetstar flights a day, but the presence of the airline was a vote of confidence for regional flights.
There is only one winner: Air New Zealand. He pledged to keep introductory tariffs at their current level for 12 months, but said nothing about other types of tariffs. Regional routes generate about 40 percent of Air NZ's domestic revenues.
Jetstar's Auckland-to-Napier, Nelson, New Plymouth and Palmerston North services, and Wellington-Nelson services account for about 5-6 percent of Air NZ's regional operations. Although this is not great, performance on these routes will improve.
The news of the withdrawal of Jetstar had an immediate effect on the price of Air NZ shares and continues to grow, closing another 2 cents for 2.77 USD today, i.e. 11 cents more than the shares listed just before the announcement on Wednesday.
The Qantas-Air NZ transaction returns to the fore
In June last year, two airlines surprised the airline sector with a "enemies" agreement, which was negotiated in so-called record time after Air NZ announced a breakup with Virgin Australia.
The agreement allowed Qantas and Air NZ to share codes on domestic routes, showroom reciprocity and cooperation in other technical areas. The agreement did not require regulatory control and it was a bit nervous that this could restrict competition – as it just happened.
But Jetstar believes that it was not a deal of enemies. The economy has been weak for years.
• Alliance changes
"Our operations have been losing for some time – the proposal to end services results from continuous losses, higher costs, including fuel, and further weakening of the market, which we will not see improvement soon." said a spokeswoman.
Qantas continues to provide codes on the Jetstar network in New Zealand. After implementing the Air NZ code sharing between the Jetstar flight and the Air NZ flight, a buffer of several hours with the Qantas code was introduced. This is designed to protect Jetstar flights.
The agreement does not allow Air NZ to place its code on Jetstar services and vice versa. Most Qantas or Jetstar passengers flying through Tasman fly point-to-point, and so straight to the main centers, not to the regional network.
The agreement benefits mainly New Zealanders who fly to Australia and then fly in the country – they are guided by Qantas flights instead of Virgin Australia.
The airlines have sworn to compete as usual on international routes and there are signs that more is coming. Qantas and American Airlines joint venture partner extended their contract in July, which gave the US carrier the opportunity to increase flights from New Zealand.
There is market talk that an American can resume year-round flights between Auckland and Los Angeles and / or start Auckland-Dallas services. Flights to the USA from Christchurch are also possible. Air NZ never welcomes Pacific flights by competitors.
Danger of "flying blind" using codes
But the New Zealand Airport Association (NZ Airports) says there are still questions about the impact of the Air New Zealand-Qantas partnership.
Air travelers to regions and regional communities will soon feel the loss after Jetstar announces that it will leave four regional routes, but there are valuable lessons for the future, says NZ Airport Executive Director Kevin Ward, whose members are often destroyed by airlines over charging.
"There will always be instability on airline routes, in competition and at activity levels, so we need to learn from major setbacks for airline passengers like this and build a more resilient and transparent airline system.
New Zealand is "flying blind" when it comes to good aviation data and reports, says Ward.
Society and government are very poorly informed.
There is no official collection or publication of what happens in terms of the number of passengers and flights to specific cities, the volume of domestic air transport whose routes from city to city increase or decrease with the passage of time, timely performance standards and cancellations, or what happens with average air fares, he says.
New Zealand was far behind in terms of public transparency compared to other countries. Australia has a well-developed system and regular publications that can be a model for this country, says Ward.
"Better information would certainly help competition regulators when a code sharing agreement was proposed a year ago between Air New Zealand and the Qantas Group, which could affect future Jetstar operations in New Zealand," says Ward.
"It is difficult to determine what is in the interest of the consumer and what is not when the airlines propose joint commercial arrangements that affect normal competition, and doubly so, without good data and historical trends at a detailed level.
New Zealand should now provide comprehensive data collection and reporting to protect passengers' interests, says Ward.
Politics are changing
Air NZ is always a convenient political goal. Key (who is now on the board of the airline) subtly dug the airline because of regional prices for political influence when he welcomed the 2015 statement by Jetstar.
Since then, the self-appointed regional champion Shane Jones has criticized the bulldozer. Luxon has become the target of cuts in some services, and even greater with the possible entry into the policy of the National Party.
In light of the exit from Jetstar, he was able to tell shareholders at their yesterday's meeting that running a regional operation was complicated and pointed out that regional flights had grown three times faster than GDP growth in the last five years.
Cities that still have services have more.
Dame Therese Walsh took over from Tony & # 39; ego Carter (who also fiercely argued with Jones last year) as chairman of the airline and said the search for Luxon's successor was "going well" and the announcement would be announced next month.
Jetstar's departure from the regions gives Air NZ many opportunities to raise prices, as Jones and Finance Minister Grant Robertson warned. The new chair and new CEO give the airline a chance to reset in this government.