Struggling regional airlines to be thrown a Government lifeline

Tuesday, 26 August 2025

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Regional aviation will be thrown a lifeline by the Government as small airlines struggle to survive and keep remote communities connected, Aviation Minister James Meager says.

Meager hopes an action plan and recommendations will be on his desk by the end of the month, and will include advice on investing in infrastructure support for vulnerable regional routes not served by Air New Zealand.

While the national carrier connects 20 regions to the main centres, there is a group of small airlines that fly under the radar, providing vital links between provincial centres and towns such as Wairoa, Masterton, Whitianga, Tākaka, Stewart Island and Westport.

These outfits typically operate small and often older piston-engined aircraft, as well as larger more modern turboprop planes flown by the likes of Sounds Air across Cook Strait and Great Barrier Air in the north, Air Chathams, Sunair and Stewart Island Flights from Invercargill.

Aviation Industry Association chief executive Simon Wallace says small airlines connect communities to business, tourism, healthcare and emergency response when natural disasters strike.

Wallace says there are a range of short-term solutions that can provide some relief for the sector which was hit by a more than doubling of the domestic passenger levy from the Civil Aviation Authority (CAA) on July 1. But the regulator has not provided the service the industry could expect, he says.

That's been compounded by state air traffic controller, Airways, increasing its fees 7.8% this year, and nearly 18% over the next three years. “Yet it returned a $14 million profit to the Crown,” he says.

If you're a small airline, those costs are adding hundreds of thousands of dollars onto the bottom line of what's already a pretty marginal operation, Wallace says.

It is a perfect storm of government charges that have hit the sector in the past 12 months.

Airlines can increase fares only by so much before they become uncompetitive and people decide not to fly, and drive instead, he says.

Meager says a decision to increase the passenger safety levy and the passenger security levy by about 145% in some cases, from about $1.50 to about $3, was due to the aviation shut-down during Covid. However, that also meant CAA did not receive those levies to fund its work over that time.

The agency ate into its reserves and the Crown provided funding to keep it operating, he says. As the aviation sector got back on its feet and passengers numbers recovered, CAA had to rebuild its reserves so it could continue to operate.

“We are very much aware of the cost that puts on airlines, and we're trying to do whatever we can do to bring those costs down across the sector, and figure out other ways that we can support regional connectivity as well.”

It is about the security of the routes, and what impact that has on the wider aviation network if some of those routes fall away, Meager says ‒ particularly those where people do not have another option such as Westport, and the Chatham Islands, where there is no alternative to flying.

“Ultimately, the solution will be to get passenger numbers back up and running.”

Wallace says a pause on part of these levy increases would certainly provide some short-term relief, because once a route is pulled or an aircraft is taken out of service, ”it very rarely comes back”.

Sounds Air is a recent example of that. The Cook Strait operator has decided to sell its fleet of nine-seater PC-12 pressurised aircraft, and drop its Blenheim to Christchurch service and on to Wānaka, at a cost of 10 jobs. It will instead return to it roots and refocus on its core Cook Strait network operated with Cessna Caravans.

There needs to be certainty provided to these airlines for them to invest in aircraft, Wallace says.

Australia has made a commitment to its remote regional air services, he says. “They're actually more than just about passengers. They're about healthcare and emergency response or disaster relief. And I think what is missing in some of this discussion is, it's not just about passenger services. It's about aviation's contribution — what I call their contribution to social GDP.

“The Government has put considerable amount of Crown funding into rail and road. What we're saying is that aviation is no different because of the services that it's providing and the connectivity that it's providing.”

Professor Graeme Samuel is the chairperson of trans-Tasman lobby group Airlines for Australia and New Zealand. He says marginal Outback routes primarily in Queensland and Western Australia are subsidised and awarded through an exclusive tender system.

“It is the normal process of recognition that regional Australia has an important part to play in both the economy and the social and economic environment of Australia, and therefore it's appropriate that it be subsidised, and that that's been the case for as many decades.”

The subsidies are funded by higher prices charged to city dwellers, Samuel says.

In New Zealand, high government and airport charges are “making it extremely difficult for regional airlines to fly out of, for example, Auckland Airport. It is the reason why the regional services are tending to be in decline in New Zealand, and something's got to be done to try and reverse that,” he says.

Aviation consultant Irene King says allowing airlines to lower oversight regime would substantially reduce compliance costs for the likes of Sounds Air and Great Barrier. “That is something that the Government could do for these guys.

“I don't think it actually exposes the travelling public to any greater risk, and it would be comparable to the way the rest of the world runs,” she says.

Meager says he can see why it would be attractive to move a particular size airline to a lighter touch regulatory system. But if a small airline also runs medium-sized planes, then it will still have the same safety risks that a large airline has running the same size planes.

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