Winners and losers in Air New Zealand's regional shakeup

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Air New Zealand [NZX: AIR] is responding to complaints about the high costs of regional air travel by eliminating the entire tier of its smallest aircraft, adding capacity on all but a few routes and cutting fares by an average 15%.

It is also putting a cap on last-minute fares for compassionate or medical trips – at $169 for one sector and $249 for two or more. (Details are here.)

Eagle Airways, which operates 19-seater Beechcraft aircraft, will be phased out by August 2016 and its routes taken over by the 50-seat Bombardier Q300s operated by Air Nelson and the 68-seat ATR72s of Mount Cook Airline.

Chief executive officer Christopher Luxon says the airline will invest $100 million in four new ATR72s, bringing the total investment in these aircraft to $300 million over four years.

“The 19-seat aircraft is the smallest in the Air New Zealand fleet but has the highest cost per seat to operate because the fixed costs of operation are distributed across fewer passengers,” he says. 

“This has led to Eagle Airways … losing $1 million per month for the past two years, or the equivalent of $26 per one way passenger journey,” he says, adding that demand for seats in some regional routes has been increasing.

“Air New Zealand has already begun putting more seat capacity into those markets and is announcing today an acceleration of that process

“Our average regional air fare has fallen by 2% over the past five years and today’s announcement will keep further downward pressure on regional airfares. 

“On the 13 routes which will move from 19-seat aircraft to more cost effective 50-seat aircraft we expect to deliver a 15% average fare reduction to our customers.”

A dozen cities and towns will benefit: Kerikeri, Whangarei, Tauranga, Hamilton, Rotorua, Gisborne, Taupo, Wanganui, Palmerston North, Blenheim, Hokitika and Timaru.  Each will progressively move to 50 seat aircraft and benefit from fare reductions.

The losers are Kaitaia, Whakatane and Westport, which will have all services cancelled. The following routes will also go from April 2015: Kaitaia-Auckland; Whakatane-Auckland; Whangarei-Wellington; Taupo-Wellington; Westport-Wellington and Palmerston North-Nelson. 

Hamilton-Auckland will also be suspended from February 2016.