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Qantas, Air New Zealand Expect Boost From Foreign Airlines Schedule Constraints

Edward Russell

August 25th, 2022

Qantas and Air New Zealand are optimistic about at least the next year. Executives from both carriers cited lower international airline capacity into their respective home markets, Australia and New Zealand, for what they anticipate to be a strong revenue environment as travelers return to nations in the southern hemisphere.

Sydney-based Qantas, the larger of the two, expects industry capacity to Australia to lag 2019 levels through its 2025 fiscal year, which ends in June 2025. This, Group CEO Alan Joyce said during the airline’s full-year results call Thursday, will drive higher unit revenues — in other words, higher fares — for Qantas on international flights, and support the carrier’s return to profitability. Qantas’ domestic business is already profitable with Joyce “very optimistic” that international will return to the black in the current fiscal year, which ends in June 2023.

Australia will have “had five years of growth in the economy since [2019], so that’s still undeserving the market,” Joyce said referring to Qantas’ expectation that international industry capacity will only return to pre-pandemic levels in 2025. “There’s a lot more demand than there is supply and that does result in high” unit revenues.

Air New Zealand sees much of the same — high international demand on limited capacity — but is less optimistic about its duration. The airline’s Chief Financial Officer Richard Thomson said Thursday that, based on internal forecasts, Air New Zealand expects international industry capacity to New Zealand to remain constrained and below demand through at least the end of its current fiscal year, which also ends in June 2023.

“Internationally, there are relatively sort of few operators — other airline operators into the New Zealand market,” Thomson said. “So we’ve seen a supportive yield environment.”

What’s constraining schedules to Australia and New Zealand? Aircraft supply, executives at both airlines said.

Both Airbus and Boeing face production delays, primarily due to supply chain issues, of new aircraft. These are impacting deliveries of everything from new Airbus A320neo family jets to Boeing 787 widebodies. Qantas and Air New Zealand, in particular, are affected by the latter. The U.S. Federal Aviation Administration made Boeing suspend deliveries of new 787s for over a year due to production quality issues. Deliveries only resumed earlier in August with the hand over of a new 787-8 to American Airlines.

Qantas, which has firm orders for three 787-9s according to Boeing, does not expect them to begin arriving until the June quarter of 2023, said Joyce. That has delayed the airline’s ability to replace the capacity that was lost when it retired its Boeing 747s during the crisis. In addition, the return of Qantas’ Airbus A380s takes some time with each aircraft needing at least three months of maintenance and overhaul work before the superjumbo jets can return to service.

Qantas only anticipates recovering 75 percent of its pre-pandemic international capacity during the 2023 fiscal year, and a full recovery in 2024, due to aircraft limitations and markets that remain closed, namely China. Domestic Australia capacity, on the other hand, will be at 101 percent of 2019 in the 2023 fiscal year. The 2024 capacity outlook is lifted by Qantas’ plans for new thrice-weekly nonstop service between Auckland and New York JFK that will begin next June.

Air New Zealand has orders for eight 787-10s that it does not expect before the year ending in June 2025. That represents a one-year delay from previous guidance based on what Thomson said is the airline’s “current view of likely delivery dates” after discussions with Boeing. Air New Zealand’s aircraft will also come with a planned maximum takeoff weight, or MTOW, increase that will allow the 787s to fly nonstop between Auckland and Los Angeles with a full load and no weight restrictions.

Earlier in August, a Boeing spokesperson said the airframer was “currently working to incorporate [the MTOW] offering into production.”

Air New Zealand plans to fly 75-80 percent of its pre-Covid system capacity during the year ending in June. Domestic capacity will reach about 2019 levels, while long-haul international will be 65-70 percent of three years ago. Air New Zealand will launch new Auckland-New York flights on September 17.

But neither airline is alone. American and United Airlines — both of which serve, or plan to serve, both Australia and New Zealand — are awaiting delayed 787s. Qatar Airways, the fifth largest foreign airline to Australia by seats in 2019 according to Diio by Cirium, lacks widebody jets due to an ongoing legal case with Airbus over A350s. And the delayed entry-into-service of the new Boeing 777X has hampered Emirates’ growth plans.

Also, Covid travel restrictions continue to limit flying by many Asian carriers into Australia and New Zealand. Airlines from mainland China are barely flying and the same goes for Cathay Pacific Airways. Singapore Airlines, which was the largest foreign airline to Australia in 2019, is only at 75 percent of pre-crisis seat capacity this year, Diio shows. And Virgin Australia, which was a significant competitor to Qantas before the pandemic, ended all long-haul flying last year.

“The demand is there,” Qantas CEO for domestic and international Andrew David said. “The demand exceeds what we saw in” fiscal year 2019. Air New Zealand’s Thomson echoed this view describing demand as “robust.”

With Qantas and Air New Zealand’s optimism for the future, it would be easy to forget both airlines’ losses in the fiscal year ending in June. Qantas reported an underlying loss before taxes of A$1.86 billion ($1.3 billion) for the period after an earnings before interest, taxes, depreciation, and amortization (EBITDA) profit of A$281 million. Revenues were down 49 percent year-over-three-years to A$9.1 billion. Unit revenues, however, were up 7 percent over the period but unit costs, excluding fuel and depreciation, were up nearly 44 percent.

Air New Zealand reported a pre-tax loss of NZ$810 million ($504 million) in its 2022 fiscal year. Revenues decreased 53 percent year-over-three-years to NZ$2.7 billion. Unit revenues were up nearly 29 percent, and unit costs excluding fuel 31 percent.

Edward Russell

August 25th, 2022

Photo credit:  Flickr / Michael Coghlan

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