Battle of the Pacific: American airlines flock back to New Zealand

Wednesday, 12 July 2023

Alliance partners United Airlines and Air New Zealand will take on trans-Pacific rivals over summer.

The battle of the Pacific is heating up and Air New Zealand is facing strong competition from American and Australian rivals.

Key among them is Qantas, which launched its direct Auckland to New York service in June, matching Air NZ’s three flights a week. But the Australian carrier has already upped the ante by adding a fourth flight from October.

However, AirlineRatings.com editor-in-chief Geoffrey Thomas says the Qantas challenge will be relatively short-lived.

Qantas plans to fly direct to the big apple from Sydney when it launches Project Sunrise in late 2025 when the first of its new Airbus A350-1000 aircraft arrive.

“So the Auckland dalliance that you've got at the moment is not going to last,” Thomas said.

Singapore-based aviation industry analyst Brendan Sobie says a record amount of capacity will be offered from the United States this summer, with some US airlines offering mores seats than before the pandemic.

The Air New Zealand Skynest bunk beds will be introduced next year.

For Air NZ, the US has become its main long haul market after dropping its previous flagship route to London in 2020. The airline has also expanded its US network beyond Los Angeles and San Francisco to include direct flights from Auckland to Chicago and Houston and its ultra-long haul flagship route to New York, Sobie says.

Ultra-long haul is defined as a nonstop flight that take longer than 16 hours. Auckland to New York squeezes in by 15 minutes, and takes 17 hours and 35 minutes on the way back.

Thomas is confident Air NZ will hold its own against the US giants on the Pacific, which is an expanding market, because it is the best airline on the route.

It offers the best economy and premium economy options in the world, including the Skycouch bedseats, the ability to buy the seat beside you for extra space, and the revolutionary Skynest bunks planned for next year, he says.

The hottest route is Los Angeles to Auckland with United Airlines, Delta and American Airlines all flying tourist to New Zealand over for the summer months.

Air NZ currently has the market to itself, operating 10 flights a week.

But that will change when alliance and codeshare partner United Airlines starts a three-times-a-week service on the route as part of a revenue sharing agreement with Air NZ.

United already flies from San Francisco to Auckland and will add Christchurch between December to March.

American Airlines will fly daily to Auckland from Los Angeles between December and March, and daily from Dallas between October and March.

Delta will also serve Auckland from Los Angeles daily between October and March.

Hawaiian Airlines already pits its three-times-a-week Honolulu to Auckland service against Air NZ’s five-days-a-week schedule.

Sobie says it is always a delicate balance for foreign airlines to fly to New Zealand because it is a relatively small market.

The market can quickly shift from being underserved to being highly competitive with the arrival of just a few new airlines, he says.

Flights to New Zealand ramp up during summer and then leave again just as quickly, he says.

Flight Centre New Zealand managing director Victoria Courtney says fares are still 30 to 40% higher than before the pandemic.

Flight Centre managing director Victoria Courtney says international capacity to New Zealand is back at 84% of pre-Covid levels, but there has been a big shift by travellers to US carriers, and away from Asian airlines.

A number of Asian airlines were yet to return including Thai Airways from Bangkok, and Hong Kong-based giant Cathay Pacific, which has resumed flying three times a week to Auckland, but is still short of the daily flights it offered before Covid, Courtney says.

Singapore Airlines is back to pre-Covid capacity levels, with the exception of its Wellington service via Melbourne which as not resumed, as is Malaysia Airlines. But probably no other Asian airline is.

As a result all Asian routes were capacity constrained, Courtney says.

Sobie says two things happened that left airlines short of aircraft in the wake of the pandemic.

“One is that the market recovered faster than expected. And the other is the delivery delays of new aircraft.

“Most airlines have been doing better than expected just because of the high yield environment and the recovery has been faster than expected.”

Watch as Air New Zealand's first direct flight to New York from Auckland lands at John F Kennedy International Airport. (First published in September 2022)

Air New Zealand is also benefiting from high airfares, Sobie says.

Air NZ in June lifted its annual profit forecast for a second time in just a few months as it benefits from strong demand and lower jet fuel prices.

It expects to make a profit before tax of at least $580 million for the year to June 30 - a turnaround from a pre-tax loss of $725m last year.

Courtney says there is more capacity to the US than there was before the Covid-19 pandemic in real terms, with about 28 flights a week out of Auckland to Los Angeles and San Francisco in the peak periods, compared to about 20 before Covid.

But despite the competition, fares are yet to start falling back to anywhere near pre-pandemic levels.

In the week to December 26 all four airlines flying Auckland to Los Angeles were offering fares between $934 and $994, although United did have $724 fare on Christmas Day.

Higher fares also mean people are booking flights six months or more ahead of departure to snatch the cheapest seats. That compared to the previously traditional four months. But even so, the cost of those seats is still 30% to 40% higher than before the pandemic, she says.

It is unlikely fares will reduce significantly in the near future because many airlines took on large amounts of debt to survive while they were grounded, which has to be paid for, she says.

Airlines globally lost US$370 billion (NZ$600b) in passenger revenue because of the pandemic, according to data firm Statistica.

Vietjet flies from Ho Chi Minh City to Brisbane, Sydney and Melbourne and could consider adding New Zealand to its network. (File photo)

Thomas says fares have remained high because there is a shortage of seats as airlines struggle to bring aircraft out of storage fast enough, and delivery of new aircraft face delays.

And because they are all in the same position “airlines are saying hang about, everybody's paying high fares. You know, we don't have to drop our fares,” Thomas says.

Eventually the fares will return to previous levels, but it requires budget airline that were devastated by Covid, to resume services to Auckland.

Low-cost Vietnamese airline VietJet could also look at extending its network to Auckland, from Hanoi, Thomas said.

After more than 855 days in storage, the last of Air New Zealand's Boeing 777-300s is coming home.

VietJet already flies from Ho Chi Minh City to Brisbane, Sydney and Melbourne.

“So there are some carriers there that are making moves to either recover or start new services.

“I think over the next 12 months, we're going to see a decrease [in fares]. But it possibly won't be as fast as we think,” Thomas says.

Courtney says while US airlines mainly bring American tourists to the country, New Zealanders are jumping on board to fly to Europe via the US rather than Asia, which was not common before Covid, she says.

Chinese airlines have largely returned on reduced schedules, but people are still reluctant to travel via China, mainly because of concerns about the risks changing Covid testing regulations, she says.

There has also been a big shift from economy to premium economy and business, partly driven by health concerns onboard, but also comfort.

Some people feel they can justify the extra cost, which can be more than double an economy fare, because they have not had an overseas holiday in several years, she says.

Air New Zealand is growing back with a smaller long haul fleet of 14 Boeing 787-9 and seven larger 777-300ER. The fleet has shrunk by eight aircraft because its ageing 777-200ER fleet were retired during Covid and will not return them from desert storage.

The airline is investing $3.5b in new aircraft and refurbishing its existing 787 fleet over the next five years.

Five Airbus A320neo single-isle jets will also add more seats on the Tasman and Pacific Island services.

In addition, the airline has chartered an A330 wide body jet operated by Spanish airline Wamos to cover the Auckland to Perth route and it is in the process of leasing an additional 777-300ER from Cathay Pacific.

Leasing extra aircraft is common practice to fill capacity gaps.

Thomas says those fleet adjustments mean Air NZ still has reasonably good capacity to the US while it awaits the delivery of another Boeing 787-9s at end of next year, with the remainder progressively arriving by 2028.

Sobie said airlines like Singapore Airlines and Qantas, which have largely recovered, are still slightly short of wide body aircraft because they sold off some aircraft during Covid.

But eventually the global fleets will come back from storage to help cover for delivery delays of new aircraft, he says.

CORRECTION: Air New Zealand stopped flying to London in 2020, not 2013 as stated in an earlier version of this article. The airline dropped its Auckland to London via Hong Kong service in 2013. (Amended: 4.08pm, July 16, 2023)