Air freight hangs on a subsidy lifeline.
Air NZ would have to ‘seriously consider’ whether international flights would continue without the freight subsidy, CEO says. John Anthony reports.
Airlines have praised a Government decision to extend a subsidy scheme designed to keep air cargo moving, but say continuing financial support will be needed beyond New Zealand’s borders reopening.
As part of the Government’s $600 million package to support the aviation industry through Covid-19, $320m was allocated towards an international air freight capacity scheme.
The scheme, launched in May and administered by the Ministry of Transport, provides financial support to carriers to guarantee that flights on key international routes continue, allowing goods to continue moving in and out of the country.
With New Zealand’s borders closed and little passenger demand for air travel, cargo capacity (historically provided by passenger aircraft) has plummeted and freight rates have gone through the roof.
Freightways, one of the freight companies participating in the scheme, said that when the flow of international passengers stopped, the price per kilogram to move freight increased by more than 300 per cent.
Amid the pandemic’s continuing impact on international air travel, the Government last month said it would extend the scheme with a ‘‘phase two’’ running from December until the end of March.
About $6m a week was given to airlines under phase one. Based on 70 flights per week, that works out at about $86,000 in Government contributions per flight.
When the scheme launched it supported 53 weekly flights to key export markets.
It has expanded to 70 flights per week, and Air New Zealand accounts for 59 of those. The remaining flights are operated by China Airlines, Emirates, Freightways, Tasman Cargo, China Southern and Qantas.
The scheme not only supports the international movement of air freight, but also ensures people can enter and leave New Zealand.
The ministry’s preferred funding model calculates a maximum contribution on the basis of the provider having sold at least 80 per cent of available freight capacity at market rates.
The model relies on a high degree of transparency and close collaboration.
Air New Zealand chief executive Greg Foran on
Thursday told RNZ that if it didn’t have the benefit of the freight subsidy scheme he would have to ‘‘seriously consider’’ whether the airline flew internationally.
Its Dreamliner fleet was operating the freight flights, and over the summer period he hoped the airline would operate up to 60 or 70 freight flights per week.
‘‘The freight contract is allowing us to get those Dreamliners in the air, move freight, move some passengers and keep a number of our pilots and crew current so it’s critically important to us,’’ Foran said.
On Wednesday it submitted its application for subsidies from January to March, he said.
Competition was tough but Air New Zealand was hoping to get ‘‘the lion’s share’’ of available subsidies.
Air New Zealand cargo general manager Anna Palairet said that since May 8, it had operated more than 950 return flights, carrying more than 33,000 tonnes of cargo in and out of New Zealand under the scheme.
Assuming borders remained restricted or closed, New Zealand exporters would be unable to maintain market connections and meet orders without the scheme, Palairet said.
Air New Zealand would like the scheme to continue beyond the border reopening, she said.
‘‘It will take a while for the passenger travel to begin and without passenger revenue, airlines cannot afford to stand up flights without Government support.’’
She said it was fantastic that the scheme had been extended to March as it allowed New Zealand exporters to maintain a market position and also get their product to market in time for the holiday period.
‘‘Between now and March we have Christmas and the Chinese New Year – which are both busy times where a great deal of New Zealand lamb is sent up to the UK and produce like berries and stone fruits to China.’’
Board of Airline Representatives executive director Justin Tighe-Umbers said that until flights became economic for airlines through increasing passenger numbers, airfreight subsidies would be essential to prevent New Zealand losing its international air connections.
‘‘International passenger numbers are restricted to about 5 per cent of the normal volume by the managed isolation and quarantine requirements,’’ Tighe-Umbers said.
‘‘This subsidy provides a lifeline for airlines and importers and exporters reliant on airfreight.’’
Brent Lewers, who runs the transport connectivity programme at the Ministry of Transport, said ministers would review the scheme before it expired at the end of March to determine what, if any, ongoing response was required.
‘‘As passenger traffic starts to grow, the available airfreight capacity should increase,’’ Lewers said.
Proposals to participate in phase two closed on Wednesday.
When applying, airlines are required to provide information about where and how often they propose to fly, the total cost of a flight and their expected revenue.
Summerfruit NZ interim chief executive Richard Palmer said while fruit growers were starting to see a ‘‘small uptick’’ in air freight capacity, their margins would be hit by expensive rates.
Cherries were the industry’s most valuable export crop and it relied heavily on air freight to export fresh fruit to overseas markets, he said. The harvest season ran from about early December to late January and this year’s export crop was estimated to be about 6000 tonnes, with 5000 tonnes of that exported by air.
Some markets without air links to New Zealand, such as Bangkok, would not get New Zealand cherries this year, he said.
45 South chief executive Tim Jones said previously 80 per cent of cherries were flown out of Christchurch and 20 per cent out of Auckland, but this year that would be reversed.
Instead of a six-hour drive from Central Otago to Christchurch, it would take 36 hours to get cherries from the orchard to Auckland, he said. ‘‘Unfortunately that means our fruit will be a day old when it hits consumers in the market.’’
Some cherries would be flown from Queenstown to Auckland to make international flights, but that capacity was limited. Jones said the situation was further complicated by the fact that this year’s export crop was set to be at least three times last year’s.