Further cuts to Air New Zealand domestic capacity predicted in 2025

Thursday, 5 December 2024

Business travel from and to Wellington have remained fairly consistent, said Corporate Traveller.

Industry expert predicts more capacity cuts in 2025 due to economic retraction.

Business travel cited as waning in the capital, shown to be fairly consistent to 2023 numbers.

People are thinking with their dollar and the family car is said to be the major competitor to Air New Zealand’s services.

An aviation industry expert is predicting further cuts to Air New Zealand’s services in 2025.

Six thousand customers will be rebooked on services between February and June next year as the airline cuts another 2% of seats in its domestic and regional schedule. The majority of customers impacted will have small changes to the time of their flight, the airline said.

The affected routes will be announced on Monday, December 9, but an Air New Zealand spokesperson told Stuff Travel Wellington will see the largest changes to the flying schedule, which reflected the softened demand for flights in and out of the capital.

Air New Zealand will use a smaller plane on some routes come January.

Angie Forsyth, general manager of travel agency Corporate Traveller, said corporate travel bookings to and from Wellington for 2024 had remained fairly consistent with 2023.

“In saying that, many of our customers are looking for ways to stretch their travel budgets and see value in their investments.

“Different industries that have reduced their travel budgets include government and public sector organisations. However, small to medium enterprises are continuing to invest in travel, recognising the importance of face-to-face meetings for building relationships with clients and suppliers—an investment that also supports the local economy.'

Independent aviation industry commentator and Ardmore Flying School general manager Irene King told Stuff Travel she was not surprised travel to Wellington had waned.

“I suspect that the contraction is pretty convenient for [Air New Zealand]. I don’t think that even if the same demand recovers, that we will see these services back any time soon and that’s because they have got so many severe challenges in terms of human resources, engineering, aircraft availability, on time performance and the constant cancellation.

Consumer NZ says domestic airfares have risen almost 300 percent in recent times.

“In my view, this is about trying to ensure some form of stability in services that they can provide.”

In the last two months, other capacity cuts have been announced. Air New Zealand will no longer fly its Invercargill to Wellington service from January 19, 2025. The airline said engine issues and softened demand were to blame.

From February 2025, the first flight of the morning from Queenstown to Christchurch will be reduced by more than 100 seats due to lower demand and daylight operating limits for turboprops.

Dunedin to Wellington will also be downsized from a jet to a turboprop, while there will be three fewer flights a week between Christchurch and New Plymouth.

What will 2025 look like?

King expected further cuts to services in 2025.

“My expectation is that we will see a couple more adjustments. The reason I say that is that the economy is still retracting and [Air NZ’s] prices are very, very high. What that's telling me is that they need to severely adjust their cost base to get their pricing strategies down to a level that you and I will accept.

“Remember we've always got the family car and the family car is the major competitor to all of the Air New Zealand services.

“At the moment a lot of customers are doing it tough and they haven't got the discretionary income to buy the high airfares that Air New Zealand is charging and they are high, but they're high for a reason. The reason is that the cost base has not been addressed and the way to do that is to start pulling back on capacity.

“Air New Zealand has not got laser-like focus on their costs and that is one of the fundamental weaknesses of this whole Air New Zealand business. They are not obsessed with controlling cost….You can not let your cost base escalate.”

Professor of Aviation at University of Southern Queensland Kan Tsui said it was too early to predict whether domestic and regional flight changes would extend into the second half of 2025.

“Several factors will influence potential adjustments to route capacity and schedules, including domestic air travel demand, household consumption, engine maintenance solutions, and pilot shortages. It’s important to note that Air NZ’s domestic network has not yet returned to pre-Covid levels and may periodically adjust seat capacity and flight frequencies based on market demand forecasts. The airline’s business model and operations are resilient.”

He said Australia’s situation differed from New Zealand’s due to its larger domestic market demand driven by its population size and land area.

“However, the current dynamics of the domestic aviation sector present a unique paradigm. Many regional routes were cut or faced reduced seats due to the collapse of Bonza (a low-cost carrier), the withdrawal of Rex from regional routes after it entered voluntary administration, and the dominance of Qantas, Jetstar…and Virgin in the domestic markets.

“In November 2024, the Australian government committed up to $80 million to keep Rex’s regional routes active during its voluntary administration. Such aviation subsidy policies from the government are crucial for maintaining regional connectivity and people’s wellbeing. Additionally, household consumption, tax cuts, and interest rates will impact travel demand in Australia’s domestic and regional markets.”

King said there was “no way” another player would enter the New Zealand market.

“I think the monopoly argument is people not understanding the fundamental economics of the aviation industry. No one can make money in this environment.”