Aviation, tourism and energy writer for the Business Herald

Are we in the golden age of air travel?

More seats, new destinations, cheaper fares -- is this the new golden age of air travel?
Two Emirates aircraft seen at Dubai airport. Photo / Bloomberg
Two Emirates aircraft seen at Dubai airport. Photo / Bloomberg

Airlines are flocking to New Zealand and existing carriers are piling on new capacity to serve a travel boom in what's being called a new golden age in air travel.

International capacity through Auckland Airport has grown by close to 10 per cent in the past five years as Kiwis travel overseas in record numbers -- up 6 per cent last year to about 2.4 million -- and the number of overseas visitors hits new highs, now above 3 million a year.

And according to figures supplied to the Ministry of Transport, there will be close to a million extra seats in and out of New Zealand this year.

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Around the world, air travel increased 6.5 per cent last year, when more than 3.5 billion passengers were carried. As much as half the increase in passengers is estimated to have been driven by falling fares.

Air New Zealand, by far the biggest airline operating here, is forecast to increase its capacity by 10.4 per cent to the middle of the year.

Low oil prices for more than a year have enabled many airlines to hold or drop fares, and carriers that have struggled for years are now back in the black and looking to expand.

According to the International Air Transport Association (IATA), airlines collectively will save $18 billion on fuel this year and post an annual $50 billion in net profits for the past year, up from $17.4 billion in 2014.

Airlines with newer fleets are even more expansive. New planes are better matched to new routes or to revitalising routes that had been given up in the past -- including New Zealand.

And it's not just international capacity that is surging.

What's driving the capacity boom?

• Airlines are taking advantage of lower fuel prices to extend their networks.
• New Zealand is a hot destination. Chinese tourists are coming in record numbers and US, Japanese and European tourists are back in force. Australians are travelling closer to home.
• The backlog of widebody plane orders is being translated into deliveries. Airlines now have hundreds of new planes such as the Boeing 787 to fly "long, thin" routes to New Zealand where aircraft with around 300 seats are ideal.
• A relatively buoyant domestic economy means Kiwis are travelling overseas in record numbers.
• New Zealand used to be thought of as an end-of-the-line destination, but there are now signs it could become a hub between Asia and Latin America.

What does the increased capacity mean?

• Airlines need to fill planes so fares come down, especially out of peak periods.
• But as carriers scrap it out on key routes, this can lead to heavy losses in the long term and overseas airlines pulling out.

What could stall the boom?

• The same factors that are partly responsible for the fall in oil prices -- a slowing Chinese economy, choppy economic recovery elsewhere -- could weaken demand for air travel, though it has been largely immune in the past few years.
• Financial market shocks have historically hurt air travel, especially in the premium cabins where airlines make most of their money.
• Steep falls in fuel prices have been most help to airlines with less efficient fleets; when oil prices start heading up again, these airlines will feel the pain first.
• Demand for air travel is susceptible to other shocks including pandemics and terrorism.

The number of domestic seats on offer will be up by 6 per cent to 12 per cent as competition between Air New Zealand and Jetstar intensifies, particularly in the regions where the Australian-owned airline is adding 600,000 seats a year.

Transport Minister Simon Bridges says the Government has been deliberately "promiscuous" in forging new international deals with as many other countries as possible, to facilitate more links.

"This is an unprecedented flourishing in air services in and out of New Zealand in terms of services connecting us to the world," he says.

Auckland Airport's general manager of commercial and aeronautical, Norris Carter, says growth out of China is helping drive the tourist boom, which in turn is encouraging airlines to start new services and increase capacity on existing routes.

Last year more than 355,000 Chinese visited this country, up more than a third on the year before, and the surge shows no sign of easing.

About 100 million Chinese now travel overseas each year and this is forecast to increase to 500 million within the next five years.

American Airlines Boeing 777-300.
American Airlines Boeing 777-300.

"That's a lot of growth there and a lot of growth in the Chinese carriers to New Zealand," says Carter.

As recently as 2012, China-based airlines flew three services a week to New Zealand, but at times this summer, that had grown to more than 30 flights a week.

Adding to the boom, the United States is emerging from its post-global financial crisis hangover and airlines from that country are also benefiting, says Carter.

A number of US airlines have come out of bankruptcy protection or merged during the past few years.

"They've all emerged from that process stronger and looking for growth," says Carter.

American Airlines will begin a daily service from July that will boost seat capacity between New Zealand and the United States by 16 per cent, adding 165,000 seats a year.

With the arrival of American Airlines and United Airlines we're anticipating this low pricing as a sign of things to come.
Brent Thomas, House of Travel

United Airlines will resume flights to New Zealand around the same time, adding 140,000 seats every year on the North American route.

The economic activity for New Zealand generated by those two services will add up to nearly $400 million, according to airport estimates.

Even before the US airlines begin flying, prices have already come down.

This week, House of Travel advertised limited Air New Zealand fares to Los Angeles and San Francisco for $399 one-way, the lowest fare across the Pacific the agent has offered.

"With the arrival of American Airlines and United Airlines we're anticipating this low pricing as a sign of things to come, as the price of airfares between New Zealand and the US continues to be driven by increased competition," says the House of Travel's commercial director, Brent Thomas.

"Airlines investing in routes to New Zealand was a sign of their commitment to New Zealand -- New Zealand is ranked as one of the highest bucket list destinations."

Thomas says his firm expects "competitive pricing" to last well into 2017. The outbound market is expected to continue to grow by 5 to 7 per cent in the next 12 months.

In terms of travel in general, there are a lot of ducks lining up. Some of those will be temporary, such as oil prices, but there are structural ones in terms of technology and the income growth in Asia Pacific.

ASB economist Nathan Penny says the decline in the New Zealand dollar against the US currency and the Chinese yuan -- down about 16 per cent in the past year -- means visitors from those countries are getting particularly good value.

But despite the kiwi dollar's dip, New Zealanders still feel happy about travelling.

"As a country we have a genuine predilection to travel as long as things are alright on the home front," he says.

New Zealanders respond well to lower prices, he says, and online travel comparison sites have been critical in helping them.

"Our economy has been stable over the last year or two, dairy aside, so Kiwis are happy to travel," says Penny.

"In terms of travel in general, there are a lot of ducks lining up. Some of those will be temporary, such as oil prices, but there are structural ones in terms of technology and the income growth in Asia Pacific.

"They will support travel growth over the next few years."

Penny likens today's travel environment to the glamorous age when long-haul jet flight started.

"That's probably the best comparison we've got -- maybe we're in the second golden era of air travel."

Philip Goad, Flight Centre NZ's supplier relations and contracting leader, says airlines that see competitors expand don't want to get left behind.

Air New Zealand and Qantas planes at Auckland International Airport. Photo / Brett Phibbs
Air New Zealand and Qantas planes at Auckland International Airport. Photo / Brett Phibbs

"It's gone from famine to a feast across the Pacific. I guess some of this stuff would have occurred if not for the GFC, a lot of carriers shelved their plans," he says.

Fares would continue to fall.

"I can only see them going south. There will be an argument for overcapacity on some routes but there's still a fair way to go," says Goad.

Although airlines do share in the good times, and usually insist they're interested in growing the pie rather than hurting competitors, there are winners and losers.

A Macquarie report on Air New Zealand last month, while upbeat about its prospects this year, notes that increased or new services by competitors to China and the United States will hit the airline's revenue.

"We expect this inevitably will put pressure on yields, particularly on leisure based routes," Macquarie analysts say.

The Government negotiates air services agreements to allow new services or expand existing ones. It's up to airlines to decide to fly them, but the regulatory settings need to be in place first.

New Zealand has about 70 agreements in place and Bridges says he wants that boosted.

"I think we can get that a lot higher in the next two to three years, removing a lot of the artificial restrictions on travel."

The focus would remain on the Pacific Rim, Latin America and further afield in the Mediterranean, parts of Africa and and of Europe.

Bridges says freight is an important part of the equation, as more high-value products are being shipped by air.

New Zealand's location as a hub for traffic between Asia and Latin America is something the Government is enthusiastic about.

"We're helping commercially where we can.

"We're very keen to push along that compelling notion."

- NZ Herald

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