Air NZ cancellation ‘a godsend’
Air New Zealand’s decision to suspend its Shanghai service because of challenges presented by the coronavirus pandemic could be a blessing in disguise, an aviation expert says.
But reinstating services to China once the coronavirus has been brought under control is likely to result in ‘‘prolonged financial damage’’ for airlines, a report has warned.
Air New Zealand has suspended its daily direct Auckland Shanghai service until March 29 because of a decline in customer bookings along with operational and crew logistical challenges posed by the Government’s border restrictions put in place in response to the coronavirus.
The airline is still selling nonstop flights from Auckland to Beijing through its alliance partner Air China.
Novel coronavirus, which is believed to have originated from a live animal market in Wuhan, China, has infected nearly 15,000 people in China, and has killed about 300 people. The first death outside China has occurred – in the Philippines.
Aviation consultant Irene King said it was hard to know what the financial impact, if any, would be on Air New Zealand as a result of suspending the service.
‘‘Air New Zealand’s decision to pull out is absolutely economic.’’
The airline, which is 53 per cent owned by the Government, does not report on the performance of individual routes. But King said it was likely Air New Zealand was not making much money on the Shanghai service.
That belief is reinforced by comments made by former Air New Zealand chief executive Christopher Luxon in 2019.
Luxon said that in its 13 years of operating in China cumulative losses for the airline totalled more than $100 million and the easiest thing for Air New Zealand would be to exit the Chinese market.
Air New Zealand serviced Auckland-Shanghai using a Boeing 787-9 but now the service had been suspended that aircraft could be put to better use on other routes, King said.
Air New Zealand had already been facing aircraft deployment challenges posed by the ongoing impact that Rolls-Royce engine issues were having on its Dreamliner fleet.
‘‘I would imagine having some spare capacity is actually a godsend for them at the moment,’’ King said.
But the longer term economic impact on New Zealand’s economy as a whole could be ‘‘quite severe’’ with inbound tourism and export cargo capacity impacted, she said.
In 2003, during the severe acute respiratory syndrome (Sars) outbreak, Air New Zealand reduced total capacity by about 8 per cent and cancelled flights to Hong Kong for several months.
Analysis by the Centre for Aviation (Capa) said the coronavirus would have a vastly greater impact on aviation and tourism than Sars. ‘‘In 2003, China’s role in international aviation and tourism was a pale shadow of its enormous presence today,’’ Capa said.
Back then China had a handful of airlines, whereas now there were about 30 Chinese carriers, five of which had services to New Zealand which, as of yesterday, all continued to operate despite the border restrictions.
Capa said the increased competition meant that once the virus was brought under control, encouraging travellers back into the market would involve significant discounting, at least for a period of weeks.
‘‘As a result, the airlines involved are likely to experience prolonged financial damage.’’
Air New Zealand’s share price has dropped 6.5 per cent over the past seven days, closing at $2.74 yesterday afternoon.
House of Travel commercial director Brent Thomas said history showed that when major events hit the aviation sector it generally took about six weeks for travel patterns to return to normal. Provided there were no further major developments and no capacity constraints, he expected a similar recovery time once the coronavirus outbreak was under control.