Market makes final decision
There are business decisions; there are big business decisions; and then there are big business decisions with lots of uncertainty. Imagine being among the management of Airbus in the early 1990s sitting in Toulouse, France, contemplating the future of air travel. And then deciding this future would be an arrangement of hubs and spokes, requiring huge double-decker airplanes that would operate from hub to hub. That was the beginning of the Airbus A380, which eventually entered service in 2007 after an investment said to be US$25 billion.
Around the same time, at Boeing HQ in Chicago, a management team decided the opposite – that future travel would be from point to point. People would surely want to fly direct to their destinations from second and third-tier cities. They then signed off the development of the much smaller 787 Dreamliner, an investment of US$32b.
Four years later than the A380, Boeing delivered its first Dreamliner to Japan.
Decades after those big bets about the future of air travel, the market has spoken.
The A380 will stop being produced in
2021, while the 787 has hundreds of orders yet to be delivered.
What has become clear is that customers want the convenience of pointto-point travel. And New Zealand faces plenty of competition in this respect.
For instance, if Auckland was a city in China, it would be about the 46th largest – so there are plenty of point-to-point places for Chinese travellers to fly.
It was a Dreamliner that took Minister for Trade and Export Growth David Parker and a business delegation to South Korea late last month, as Air NZ restarted direct flights to Seoul. Those direct flights come on the back of the New Zealand-Korea free trade agreement (FTA), which has now been in force for four years. Korea is now New Zealand’s eighth largest trading partner, which is remarkable given it was a recipient of New Zealand aid until the mid1970s. The FTA has opened up the market for sectors such as kiwifruit, wine and deer products, among others, and the dairy market will see tariffs reduced over time.
Direct flights will further help our connectivity. As Parker has noted, nearly
90,000 Koreans visited New Zealand last year – and Korea is New Zealand’s fourth largest source of international students.
New Zealand is set to get a further tourism boost thanks to K-pop megastars BTS, whose travel show Bon Voyage is currently dedicated to New Zealand. The season began a month ago and runs until early January – and New Zealand ambassador Phil Turner has been attracting thousands of retweets every time he tweets about it.
Korean Air has also announced it will be running 10 charter service flights between Christchurch and Seoul this summer, becoming the first direct flight on that route for more than a decade.
New Zealand’s travel and tourism statistics show a link between direct flights from Asia and tourism numbers.
But of course it is about more than pure numbers. For many New Zealanders, meeting an overseas tourist is their first real exposure to people of a different culture. It is about building relationships, curiosity and knowledge of other peoples.
Our 2016 report on the India-New Zealand relationship found one of the barriers to growing that relationship further was the absence of direct flights.
While tourism numbers have been growing, ‘‘the time will come when direct flights need to be part of the connectivity equation’’, the report noted.
The problem New Zealand faces is a bit of a chicken and egg one – airlines need to make a profit (or go under, as many have, or be bailed out by taxpayers, as Air NZ was in 2001) so need the demand to make flying viable. But with limited supply, demand is muted.
Of course, all this is set against a backdrop of conversations, and now laws, about how to reduce our carbon footprint.
Boeing has forecast growth in the market over the next 20 years, requiring 44,000 jets. How will that work alongside New Zealand’s aim to be carbon neutral? Particularly in an industry that directly contributed NZ$12.9b (or 5.6 per cent) of the country’s GDP in 2016, as well as supporting 188,000 fulltime-equivalent jobs?
We had encouraging news last week, with the first commercial electric flight test in Vancouver. Only 15 minutes in the air so far but an important first step.
Direct flights have undoubtedly helped New Zealanders’ knowledge of the likes of China, Hong Kong, Japan, Singapore and more recently Vietnam and Indonesia (the latter only for short seasonal periods). And in diplomatic and business meetings, we often hear a lack of direct flights to other destinations – such as India – can hamper our relationships with those countries.
What is clear is that coming up there will be even more big decisions to be made, with some uncertainty around the technology required. What does seem clear though is that point-to-point travel is what customers want.