Covid-19 Delta outbreak: The Air New Zealand routes that will refuel growth

An Air New Zealand Flight leaves from Rotorua Airport. Photo/ Andrew Warner.

Air New Zealand is targeting New York next year as its flagship route and a return to Houston but it is services through cities like New Plymouth and Hamilton that will first refuel growth.

The airline expects to increase its domestic capacity to 110 per cent of pre-Covid levels by adding more routes, flight frequency and better connections in its network which has shown strong resilience during the pandemic.

Chief executive Greg Foran said its domestic operation provided about a third of revenue but was the most profitable part of its business.

Before the August border failure led to lockdowns the airline had enjoyed record leisure demand from Kiwis flying around the country. Leisure demand was up 130 per cent in May, June and July compared to pre-Covid levels as nearly all flights were restored.

Before August there had seen strong performance with routes such as Tauranga — Christchurch and Hamilton — Christchurch performing well above pre-Covid levels, along with New Plymouth, Kerikeri and Invercargill.

Business travel also defied the fears it would be slow to recover and was running at 90 per cent of pre-Covid levels.

Foran said the continued domestic operation was key to recovery of the airline as it waits for lockdowns to end and get back to the middle part of its ''survive, revive and thrive'' strategy.

''This is our core. In the last financial year, it remained strong during Covid, recovers quickly after lockdowns and provides a strong foil to the fluctuations of international travel. It's also the heart of our profitability.''

Compared to 2019 when domestic made up 32 per cent of the $5b of passenger revenue, last year it comprised 81 per cent of $1.5b of passenger sales.

He said it was ''exciting'' to see during the period of April through to July just how strong the domestic businesses was.

''If you get some good product running, coupled with the fact that there has been some movement out of the main cities to regional areas.''

This was shown by Statistics\NZ figures last week which showed for the first time on record Auckland's population has fallen, with Covid-19 being blamed for people moving away.

Stats NZ said that while the population decrease was only 1300 - or 0.1 per cent - this was significant change.

Air New Zealand chief executive Greg Foran. Photo / Brett Phibbs

Foran told the Herald that the way people were working remotely in regional centres also made it easier to boost services.

''The thing that we find when people have moved to the regions and they are working from home, they're happy to travel at different times of the day.''

This meant they were happy to travel at non-peak times which meant Air New Zealand would be able to use aircraft more efficiently across the day. Aircraft that were now under-utilised in the middle of the day could be used to better serve the regions.

New routes were at the early planning stage but the current lockdown had provided some glimpse into the future. The new Wellington-Kerikeri flight, bypassing locked down Auckland, was one example. Doing more hub flying in cities outside of Auckland during the past 10 weeks had also provided some valuable lessons although only about 40 per cent of flights were operating.

Air New Zealand was about to take delivery of two new Airbus A320s and another ATR-600 which would give it more domestic options.

Whenever the airline had put in more capacity to the regions recently demand had always matched it.

The airline came under fire for pulling out of several domestic routes and centres from 2014 to 2016 but now strong primary industry-based economies in the regions and migration from the big cities makes the business case stronger for more services.

From February Air New Zealand will require all international passengers to be fully vaccinated and along with the Government is mulling extending this to domestic flying.

Foran said the now rapid uptake of vaccines towards the 90 per cent target indicated strong support for them among customers. However, air travel was sometimes the only practical way of getting to some places and that is where pre-flight testing could be used for unvaccinated travellers.

If vaccines became mandatory for domestic travellers this would need to be matched by an efficient digital system.

''There's some operational challenges. Who's going to check that you've been vaccinated? Is it going to be one of the (Air NZ) team. Where are you going to do it - before you get on the plane at the boarding gate in which case you need to be careful that you do that with enough speed.''

He said this could lead to delays.

Air New Zealand will also see its Airpoints loyalty programme as key to recovery.

Loyalty is playing an increasing role in airlines globally.

Foran told shareholders last week his airline's programme was an untapped source of new revenue and a ''superb channel to highlight the benefits Air New Zealand offers over competitors.''

It was about to announce changes to a redesigned programme, refocusing and enhancing it to increase engagement with customers.

It had 3.6 million members and with most grounded over the last 20 months, they were burning more points through its store than on flights.

Forsyth Barr last year valued the Airpoints scheme at $725m.