Air New Zealand Would Prefer U.S. Carriers Focus Elsewhere
American and Delta have discovered Oceania is a good place to send airplanes when European demand wanes. That's not ideal for the home airline.
Dear readers,
Since pandemic ended, American, Delta and United say they have uncovered a simple solution to a long-running problem — how to make gobs of money during the summer transatlantic peak without giving up the profits in winter. Historically, they’d rack up gigantic margins flying to Greece, Italy and Spain from June through September, and struggle to not lose money with the same airplanes the rest of the year.
Now, airlines say Europe demand trends have changed; peak season is longer, from late March through October.1 Instead of finding a home for the airplane for nine months a year, they only must place the airplane elsewhere for six. And they all know a region that has strong demand between October and March, making it a perfect complement — North America to Australia and New Zealand.
This subject came up Thursday on Air New Zealand's 2023 fiscal year results call, when the airline reported a full-year profit of $412 million NZD ($244 million U.S.) on total revenues of $6.33 billion NZD ($3.75 billion U.S.). All the extra capacity makes the airline’s CEO, Greg Foran, a little uneasy.
“One of the bigger changes in FY '24 is the increase in international carriers who will start flying to New Zealand,” he told analysts. “We believe we are well positioned to face into the increased competition. However, we acknowledge that this is likely to put pressure on yields from current levels.”
Including new service from Qantas from Auckland to New York, total capacity between New Zealand and the United States will be up more than 120 percent between October and March, Foran said. Many new seats come from United, which has a joint venture and antitrust immunity with Air New Zealand and is viewed as a collaborator. But Delta soon will launch its first service from Los Angeles to Auckland, while American in December will resume its Los Angeles-Auckland route, last served before the pandemic. Also, for the second consecutive northern winter, American will fly Dallas/Fort Worth to Auckland. That’s a lot of competitive capacity for a small airline in a small country that until recently had limited service from U.S. airlines.2
For now, Foran said, business remains strong, thanks to pent-up demand in New Zealand and North America. (Demand is also strong among passengers transferring in the United States on their way to Europe.) But Foran, a former Walmart executive3 whom I have noticed is more honest (or perhaps more pessimistic) than the average airline CEO, told analysts the good times eventually will end.
"Although you've heard me talk today about a trading environment that is as constructive as any of the aviation industry has seen, we do know that these conditions are unlikely to persist long term," he said. "Even as supply constraints remain as they do today and it's likely they will for some time yet, there are some very real headwinds on the horizon."
What’s interesting is that Foran didn’t give many concrete reasons for his hunch. He and his colleagues said business is as good as ever. The airline is reporting a nice business travel recovery, and it said Asia routes have performed well. In addition, while outsiders might say the airline has too few airplanes, Foran said the limited widebody fleet is more productive than ever.
Paid subscribers should read on for more of Foran’s commentary, along with some links to stories I have enjoyed in recent days.