Air New Zealand Earnings to Fall due to Qantas Airlines

Air New Zealand Earnings to Fall due to Qantas Airlines. Air New Zealand's earnings are poised to come under significant pressure as a result of Qantas Airways' strategy of launching regional Jetstar flights in New Zealand and threatening to enter the monopoly New Zealand-mainland North America market in partnership with American Airlines, analysts say.

A Credit Suisse analysis has revealed Kiwi passengers in economy class are paying on average 38 per cent more per kilometre on non-stop flights between New Zealand the mainland US compared with what Australian passengers on Qantas pay per kilometre on the longer flights between Sydney and Melbourne and Los Angeles.

The Qantas figures were translated to New Zealand dollars to conduct the exercise. The overall premium of 15.4 per cent received by Air NZ on trans-Pacific flights is lower in part because the Kiwi carrier's flights have a smaller proportion of business-class seats than Qantas. 

Qantas and American have flagged the potential to enter the Auckland-Los Angeles route as early as next year, in a move that could place significant pressure on Airfares on trans-Pacific routes from New Zealand.

Credit Suisse said the negative impact on Air NZ's earnings before interest and tax (EBIT) could initially exceed $NZ50 million ($44.4 million) a year. Overall, as a result of the trans-Pacific threat and the entry of Jetstar onto regional NZ routes, the broker has slashed its 2016-17 EBIT forecast for Air NZ by 16 per cent, or $NZ90 million, to $NZ464 million.

There has been industry speculation that Air NZ could strengthen its trans-Pacific relationship with United Airlines – currently limited to codesharing – to a deeper revenue-sharing alliance. This would have anti-trust immunity as Qantas and American and rival partners Virgin Australia and Delta Air Lines have done as a result of the new competitive threat.

At present, Air NZ and United compete fiercely for Australian traffic on city pairs like Melbourne-San Francisco and Adelaide-Los Angeles despite their codesharing relationship.

But Air NZ chief sales and commercial officer Cam Wallace said there were no plans to deepen the relationship with United at present. "At the moment, we are confident with the network and the structure of the relationship with United," he said.

On regional New Zealand routes, Mr Wallace said he was confident Air NZ was prepared for the competition from Jetstar because it had restructured its network over the last year in anticipation of a rival entering the market.

Forsyth Barr analyst Andy Bowley said he expected the first four routes to be targeted by Jetstar would include Auckland-Nelson, Auckland-Palmerston North, Nelson-Wellington and Auckland-Napier, based on revenue potential. He said the Jetstar revenue objective would be around $NZ60 million, which is 4 per cent of Air NZ's domestic revenue base.

Craigs Investment Partners said it was not unreasonable to expect Air NZ would lose between $NZ30 million and $NZ50 million in revenue – or 4 to 7 per cent of EBIT – as a result of Jetstar's entry on the monopoly routes.




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Eesha Rohida [ MBA Mktg ]
Aviation News Editor




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