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Chapter 1: What challenges are regional airlines facing today?
I'm Sharon Brett-Kelly, and today on The Detail, I'm at Auckland Airport. I'm off to talk to the head of Air Chatham's, Duane Emine, just about how things are going, because I was here a whole year ago, and then he said that it was the worst time for the airline in its 40-year history. That was before the Middle East conflict and the fuel crisis.
So I'm off to talk to him about what's happened in that 12 months because we know that there have been some routes cancelled, not just for this airline, but for a number of regional airlines. Times are tough. But I'm also hearing that it's not all bad news.
Chapter 2: How has the Middle East conflict impacted Air Chathams?
As we go to air, there's news of a peace deal in the Middle East. And Trump's message to fuel companies is, get your engines running. But that doesn't mean crisis over for Dwayne Eminey. He'll explain how a small airline at the bottom of the world doesn't just bounce back overnight. And what's stopping him from getting out now by just chopping up his planes and selling them for parts.
Here's a taste of what's happened just in the last 12 months to the sector.
Air New Zealand is cutting more flights, this time hitting Nelson as well as Tauranga, the region. So it's 4% of services we're told, 1% of customers affected. 8,000 seats in and out of Nelson over June to July, gone.
Sounds Air is cutting back two regional services, blaming out-of-control costs. From the end of September, it will no longer fly Blenheim to Christchurch or Christchurch to Wanaka. This follows the withdrawal of the Wellington to Taupo and Wellington to Westport sectors in December last year.
Westport's air connection to Wellington will continue after Origin Air secured short-term funding to keep planes in the air. The regional airline says the route is no longer commercially viable despite being a lifeline for businesses and those needing access to health care at the top of the West Coast.
As for Edge Hattams, it was under a lot of stress a year ago. It had just been forced to suspend its Norfolk Island service.
Things were quite strained across the rest of the network and that included what we're doing to the Chatham Islands. That community was going through quite a lot with seafood prices and cost of living on the island itself. And of course our regional North Island routes connecting into Auckland were also quite challenged.
So we were bringing all of that information directly to central government and to our Associate Transport Minister, Minister Meagher. And we're very close to making decisions on further route suspensions at that time for both Kapiti and what we were doing into Whakatane as well.
But fortunately, government was able to step up and reallocate some of the regional infrastructure funding to create this air connectivity fund, which is effectively a concessionary loan. So we were talking about that last time we spoke and I'm very relieved that that announcement came through. As of today, we haven't received that money yet, but we are aware that it is very, very close.
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Chapter 3: What recent developments offer hope for Air Chathams?
Yeah, well, it's exactly that. It shows the amount of debt that our family business has actually had to take on just to maintain regional air connectivity in this country.
Just to keep going, to stay open.
That's what it is. We made a decision midway through the pandemic to retire some of our older aircraft. So we had Convair 580s, which were brought out in the 1950s. Our last one is now sitting in a museum in Wanaka. So we had to make a decision. What is the future for H Adams? And ultimately it was
We see a future with the more modern aircraft that were in our fleet, so that's the 30-seater or 34-seat Saab 340s and also the ATR 72 500 aircraft that we purchased from Air New Zealand. So significantly more modern than a Convair and a Metroliner fleet, which is what we were operating, but significantly higher capital costs.
Effectively, you're trading low capital aircraft that you have to invest a lot of money back into for your heavy maintenance and component overhaul and things like that. For these more modern aircraft, they have that higher capital cost, therefore higher cost of ownership, therefore more debt as the future for the business. Yeah.
And, of course, you're still having to reinvest back into those key components, which is your engines and your landing gear and things like that. Yeah, right.
As Duane says, that big $17 million loan isn't for new planes. It's to help manage the debt Air Chathams went into to upgrade its fleet, and it was lobbied for before the fuel crisis hit.
We borrowed to get them. We borrowed to get them and then we borrowed to keep them operating. That's the thing you do. You're in this kind of debt spiral where you're constantly having to reinvest back into your fleet and then once you do that you have a bit of a runway to operate them for four to five years and then you go back into that reinvestment cycle.
And then of course you put on top of that the impacts in terms of the global economic impact of Especially in New Zealand's case, we had an immediate sugar rush off the back of COVID restrictions dropping away where everyone wanted to travel and that was quite a nice little period of time for airlines. But then we very quickly went from that to what ultimately became quite a deep recession.
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Chapter 4: What financial support is Air Chathams expecting from the government?
It needs to involve local government. But most importantly, it needs to involve industry to say, how do we make the system more stable and robust and resilient so that we can withstand these shocks that will inevitably come from time to time? and not rely on families and shareholders to prop up regional air connectivity in this country.
So you're not talking about a subsidy on tickets. What are the models that you like overseas? You talked about Ireland.
Yeah, so, well, Ireland's just recognised air connectivity as essential infrastructure. So they just see it in the same way as roads and rail, you know, effectively. They're like, just because you can't see the areas doesn't mean they don't exist. They're still there. Airports are essential infrastructure. We must have them. If you don't have those, you can't fly in between them.
And what does that even mean? I don't understand. What difference would that make to your business by recognising regional travel as essential infrastructure? What would that mean for you?
Well, I think straight off the bat, then you could start to look at this entire user pays model, right?
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Chapter 5: How has Air Chathams adjusted its operations in the past year?
So right now, the Civil Aviation Authority is 100% covered by users, participants. So the aviation industry and airlines, we pay for it, all of it. Airways, same thing, 100% covered by the users and participants in the system. So that's us. I would say we shouldn't be doing that. If the government was looking at it in a different way and saying, actually,
These are all the good things that come from having, you know, increased frequency and more efficient moving of people around the country by ear. These are the benefits that we're getting from that. So why are these users having to cover all of these costs?
So again, it's really looking at the whole country, at the airports that you have, the air links that people need, and then weighting it in terms of how you would support each to ensure that they can remain.
In another positive development, Air Chathams has signed a new interline deal with Air New Zealand that's being trialled in Whakatane, where passengers can use the Air New Zealand website to book their journeys from Eastern Bay of Plenty through to the rest of the country on both airlines.
And then hopefully before the end of the year, we'll be looking to expand it internationally. So that's the real game changer for those regions because all of a sudden, You know, someone that's in Los Angeles or Brisbane can see Whakatane, Wanganui, Chatham Islands and book it via those New Zealand channels.
OK, so even if there is an agreement tomorrow, it's not going to immediately change the fuel prices. This could be long lasting. Have you even calculated how long it could last?
Oh, yeah, you're absolutely right. Absolutely right. I think so all of our forecasting, we're seeing this significantly escalated fuel price run out until at least the middle of next year. Now, if it drops sooner than that, well, that's brilliant. But that's what we're doing. We're forecasting it longer term because I don't think we're going to see the kind of fuel prices that we had earlier.
in January, February of this year, anytime soon. That is a serious concern for us because effectively you're delivering the same product, you've just got this increased direct operating cost that you can't get rid of.
What does that mean for your business? I mean, might you have to cut more routes, cut your schedules?
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