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New Zealand LCC market: AirAsia pulls out again, leaving only Jetstar

AirAsia X will suspend services to Auckland in early 2019, ending a second attempt at serving the New Zealand market. After the last AirAsia X flight departs Auckland on 10-Feb-2019, Jetstar will once again become the only LCC in the expanding New Zealand market.

AirAsia X has served Auckland with a daily flight from its Kuala Lumpur base with fifth freedom rights using a stop at Australia’s Gold Coast since Mar-2016. AirAsia X previously served New Zealand with four weekly nonstop flights from Kuala Lumpur to Christchurch but this route was suspended in 2012 after slightly over one year.

AirAsia X’s suspension of Auckland is a setback for New Zealand, which has been keen to attract more foreign LCCs as part of its ongoing drive to boost tourism. AirAsia X promises to relook at the New Zealand market in future, with a nonstop service from Kuala Lumpur to Auckland being its most likely third attempt. In the meantime New Zealand tourism and airport authorities will need to focus on trying to attract other Asian LCCs.

Summary

New Zealand’s rapid international growth has been all FSC driven

New Zealand’s international market has grown rapidly over the last five years, driven by inbound tourism. New Zealand visitor numbers increased by nearly 50% from 2012 to 2017, from 2.56 million to 3.73 annual visitors. 

International passenger traffic at Auckland, New Zealand’s main gateway has increased by nearly 40% over the same period – from 7.7 million in 2012 to 10.7 million in 2017. Auckland is New Zealand’s main gateway, accounting for nearly 80% of New Zealand’s total international seat capacity.

Surprisingly, the growth over the last five years has been achieved without significant additional LCC capacity. Jetstar will have around 22,500 weekly international seats in the New Zealand market during peak periods this winter compared to around 24,000 weekly seats during peak periods of winter 2013/2014.

AirAsia X has generated 5,278 seats to and from New Zealand since Mar-2016. AirAsia X’s New Zealand capacity will be temporarily reduced to 3,016 seats in late Jan-2018 as it cuts back to four weekly flights and cut to zero two weeks later as the service is suspended entirely. 

New Zealand has the lowest LCC international penetration rate in Asia Pacific 

New LCC services would stimulate demand and drive even faster growth to New Zealand’s international market. 

LCCs currently account for only 7.5% of international seat capacity to and from New Zealand. Of the top 20 international markets in Asia-Pacific, New Zealand has the lowest LCC penetration rate.

Top 20 international markets in Asia Pacific ranked by total weekly capacity with LCC penetration rates

Rank Country/Territory Total weekly seats LCC weekly seats

LCC penetration

rate (%)

1 China 3,574,457 512,677 14.3%
2 Japan 2,364,583 639,419 27.0%
3 Thailand 2,117,435 686,888 32.4%
4 South Korea 2,010,117 731,248 36.4%
5 Hong Kong 1,727,193 199,968 11.6%
6 Singapore 1,603,122 502,162 31.3%
7 India 1,593,691 396,037 24.9%
8 Taiwan 1,358,210 268,478 19.8%
9 Malaysia 1,315,363 666,653 50.7%
10 Australia 1,036,814 150,527 14.5%
11 Indonesia 938,241 358,617 38.2%
12 Vietnam 832,100 278,534 33.5%
13 Philippines 673,988 232,081 34.4%
14 Pakistan 365,976 79,094 21.6%
15 New Zealand 361,106 27,108 7.5%
16 Cambodia 282,808 74,202 26.2%
17 Sri Lanka 255,080 22,010 8.6%
18 Bangladesh 206,985 24,990 12.1%
19 Macau 213,052 69,796 32.8%
20 Myanmar 140,790 38,110 27.1%

In the current summer season New Zealand is being served by 30 foreign airlines – 28 of which are FSCs.

Jetstar is the third largest foreign airline in New Zealand – but the smallest Australian carrier as Qantas and Virgin Australia are larger. Jetstar has a 6% share of international seat capacity in New Zealand and a 10% share of New Zealand-Australia capacity (based on OAG schedules for Nov-2018). AirAsia X has a 1.5% share of international seat capacity in New Zealand, making it the 10th largest airline in the New Zealand international market, and a slightly more than 2% share of New Zealand-Australia capacity.

Top 10 airlines in New Zealand international market ranked by weekly seat capacity: 19-Nov-2018 to 25-Nov-2018

Rank Airline

IATA

code

Weekly seats Capacity share
1 Air New Zealand NZ 131,350 36.4%
2 Qantas Airways QF 48,312 13.4%
3 Virgin Australia VA 36,080 10.0%
4 Jetstar Airways JQ 21,830 6.0%
5 Emirates Airline EK 18,316 5.1%
6 Singapore Airlines SQ 15,528 4.3%
7 China Southern Airlines CZ 10,584 2.9%
8 LAN Airlines LA 8,764 2.4%
9 Fiji Airways FJ 5,554 1.5%
10 AirAsia X D7 5,278 1.5%

New Zealand was the first Asia Pacific market with LCCs 

New Zealand was the very first Asia Pacific market penetrated by LCCs, initially by independent New Zealand-based LCC Kiwi and Air New Zealand LCC subsidiary Freedom Air. Kiwi was short-lived, operating from 1995 to 1996 while Freedom, established as Air New Zealand's stalking horse, operated from 1995 to 2008. Both operated across the Tasman, focusing on secondary airports. Freedom was terminated when Air New Zealand decided to fold it into the parent company, following the latter's cost transformation.

Jetstar has served the New Zealand-Australia market since late 2005. LCCs therefore have been serving New Zealand (and Australia) for 23 consecutive years.

Following AirAsia X’s withdrawal, the LCC penetration rate in New Zealand’s international market will decline to only 6%. New Zealand’s international LCC penetration rate has already been declining the last five years because while New Zealand’s international market has been expanding rapidly virtually all the additional capacity has been generated by full service airlines.

Jetstar has not pursued expansion in New Zealand for nearly three years  

New Zealand currently has an overall (domestic and international combined) LCC penetration rate of only 12%. Jetstar competes in New Zealand’s domestic market as well as to Australia and the Cook Islands. However, its domestic and cross-Tasman market share has been on the decline the last couple of years. 

Jetstar expanded in New Zealand’s domestic market in late 2015 and early 2016, when it added five Bombardier Dash 8 Q300 turboprops and started competing on several regional routes. However, its capacity in the domestic market has since been flat, resulting in market share declines as Air New Zealand has continued to expand. 

Jetstar currently has a 17% share of New Zealand domestic capacity after reaching a high of around 20% in 1H2016. Jetstar’s domestic market share will decline further over the next year as Air New Zealand continues to expand while Jetstar is not intending to add capacity or New Zealand-based aircraft. Jetstar Group CEO Gareth Evans told CAPA earlier this year that domestic New Zealand “is a mature market so the levels of growth are not going to be phenomenal”.

See related report from CAPA sister publication Blue Swan: Jetstar’s domestic market share in New Zealand slips as Air New Zealand expands faster

Jetstar’s capacity in the Australia-New Zealand market also has dropped since reaching a high of more than 15,000 one-way seats in Dec-2015 and Jan-2016. Jetstar’s capacity share in the Australia-New Zealand market reached 13% around three years ago but over the last two years has been in the 9% to 11% range.

Jetstar currently has 23 routes in the NZ market 

Jetstar also served Auckland from Singapore, which was its only long-haul route from New Zealand, until Jul-2014. Jetstar operated Auckland-Singapore for four years with three weekly A330-200 frequencies. 

Jetstar now has 23 routes in the New Zealand market, including 12 domestic routes. Seven of the domestic routes are flown with its New Zealand-based A320s and five routes are flown with Dash 8s operated by sister airline Eastern Airways Australia

Jetstar also has 10 cross-Tasman routes linking four airports in New Zealand with three airports in Australia. Its only other international route from New Zealand is a four times weekly service from Auckland to Rarotonga in the Cook Islands.

Auckland-Christhcurch and Auckland-Wellington are the largest LCC routes in New Zealand. Jetstar has 46 and 42 weekly frequencies on these two routes, which are the largest domestic routes in New Zealand by a wide margin. The third largest LCC route in New Zealand is currently Auckland to Gold Coast as it is served by both Jetstar and AirAsia X.

LCC routes in New Zealand ranked by weekly seat capacity: 19-Nov-2018 to 25-Nov-2018

Rank Origin Destination Weekly seats
1 Auckland International Airport Christchurch International Airport 17,020
2 Auckland International Airport Wellington International Airport 15,540
3 Auckland International Airport Gold Coast Airport 7,868
4 Auckland International Airport Queenstown Airport 5,550
5 Wellington International Airport Christchurch International Airport 5,180
6 Auckland International Airport Melbourne Tullamarine Airport 2,960
7 Auckland International Airport Dunedin Airport 2,960
8 Auckland International Airport Napier Hawke's Bay Airport 2,700
9 Auckland International Airport Sydney Kingsford Smith Airport 2,590
10 Melbourne Tullamarine Airport Christchurch International Airport 2,590
11 Auckland International Airport Nelson Airport 2,500
12 Sydney Kingsford Smith Airport Queenstown Airport 2,220
13 Melbourne Tullamarine Airport Queenstown Airport 2,220
14 Auckland International Airport Palmerston North Airport 2,100
15 Sydney Kingsford Smith Airport Christchurch International Airport 1,850
16 Wellington International Airport Nelson Airport 1,800
17 Auckland International Airport Rarotonga Airport 1,480
18 Auckland International Airport New Plymouth Airport 1,400
19 Wellington International Airport Gold Coast Airport 1,110
20 Wellington International Airport Dunedin Airport 1,110
21 Wellington International Airport Queenstown Airport 1,110
22 Christchurch International Airport Gold Coast Airport 1,110
23 Gold Coast Airport Queenstown Airport 1,110

Intense competition on Gold Coast-Auckland drove AirAsia X suspension

Jetstar has five to eight weekly frequencies on Gold Coast-Auckland (depending on the time of year) using A320s. Gold Coast-Auckland is also served by Virgin Australia daily and by Air New Zealand with four to seven weekly flights (depending on the time of year).

Air New Zealand has already responded to the AirAsia X suspension by announcing a significant increase in capacity on the Gold Coast-Auckland route. Air New Zealand is adding an additional frequency in Feb-2019 and is also up-gauging its existing Gold Coast-Auckland flights from A320ceos to new A321neos. 

AirAsia X CEO Benyamin Ismail cited intense competition on the Gold Coast-Auckland leg as a reason for suspending services to New Zealand. Mr Ismail told CAPA TV at the 9-Nov-2018 CAPA Asia Aviation Summit in Singapore that Gold Coast-Auckland competitors are offering very low fares and have the advantage of using narrowbody aircraft, which are easier to fill than AirAsia X’s 377-seat A330-300s. 

“Especially with the current fuel environment I felt it’s not the best to just keep sustaining that,” Mr Ismail explained. “We fill it up but the yield is fairly low.”

However, Gold Coast Airport in announcing on 20-Nov-2018 the additional capacity to Auckland from Air New Zealand stated "the New Zealand market has been consistently strong this year". 

AirAsia X currently accounts for nearly 50% of seat capacity on Gold Coast-Auckland but this figure is somewhat misleading as a large portion of its Gold Coast-Auckland passengers originate in Kuala Lumpur. Mr Ismail said 20% to 30% of its Kuala Lumpur-Gold Coast traffic now continue to Auckland.

Auckland-Gold Coast weekly one-way seat capacity by airline: Sep-2011 to Apr-2019

AirAsia X could re-enter the NZ market with nonstops to Auckland 

AirAsia X plans to consider re-entering the New Zealand market, most likely with a nonstop flight from Kuala Lumpur to Auckland. A nonstop flight would attract more Malaysia-New Zealand traffic as a most of this traffic now flies with Malaysia Airlines, which offers a nonstop service from Auckland to Kuala Lumpur with relatively low fares. 

A nonstop flight would also enable AirAsia to offer a one-stop product from Auckland to a wide range of destinations in Asia (and London once London is resumed). The current one-stop service from Auckland to Kuala Lumpur makes it difficult to attract connection passengers beyond Kuala Lumpur due to the inconvenience of a two-stop product. 

Mr Ismail said that “Auckland I think is the right market for us [in New Zealand]. It’s something we will revisit in the next year or so.”

AirAsia X inevitably will pursue a third attempt at serving New Zealand given it is Asia Pacific’s largest widebody LCC operator and its large orderbook.

AirAsia X not willing to reconsider Christchurch 

Mr Ismail added that resuming Christchurch is not an option because the Christchurch market “has never recovered since the earthquake”.

A major earthquake struck Christchurch in Feb-2011, causing significant damage and leading to a large portion of the population moving to other areas of New Zealand. AirAsia X had committed to launching Christchurch in late 2010 and began serving the market in early Apr-2011, slightly more than a month after the earthquake, as a gesture of support for the city, but in hindsight probably should have scrapped the launch. 

Christchurch does not currently have a nonstop link with Kuala Lumpur. However, Christchurch has a year-round service from Singapore by Singapore Airlines, a year-round service from Guangzhou by China Southern and a seasonal service from Hong Kong by Cathay Pacific

The Cathay service was launched a year ago and has been relatively successful. This seems to indicate that Christchurch can potentially attract new long-haul routes, particularly if the airline targets passengers heading to New Zealand’s picturesque South Island – which has most of the country’s most famous sights.

Chinese LCCs are a possibility 

While New Zealand tourism authorities will obviously continue to try to persuade AirAsia X to again resume serving New Zealand, other Asian LCCs could become a bigger target.

China’s growing crop of long haul LCCs is a particularly logical target given the rapid growth in the New Zealand-China market. Chinese visitor numbers to New Zealand have quadrupled since 2010. 

As CAPA highlighted in a Sep-2018 report, five mainland Chinese carriers have launched services to New Zealand in the last four years. There are now six Chinese airlines in the New Zealand market but none are LCCs.

See related report: New Zealand-Nth Asia aviation market: China/HKG drive strong growth

Two LCCs currently serve the Australia-China market – Beijing Capital Airlines and Jetstar. Given the growth in the New Zealand-China market and the delivery of more widebodys to Chinese LCCs it is inevitable at least one LCC (and maybe several LCCs) will eventually serve the the New Zealand-China market.

Korea and Japan are also logical targets for new LCC services 

New Zealand could also potentially attract LCC services from Korea, Japan and the Philippines.

Korean LCC Jin Air operates widebody aircraft and has seasonal services to Cairns in Australia. While Jin is unlikely to serve Auckland - as Auckland is already served by its parent Korean Air - a seasonal route to Christchurch would be worth considering. 

In Japan, New Zealand could emerge as a potential market for the new medium/long haul LCC Japan Airlines is establishing using 787s. JAL does not currently serve New Zealand

In the Philippines, Cebu Pacific would be an obvious target for Auckland given Cebu Pacific’s expansion in Australia. However, it may be difficult to sustain two airlines on the Manila-Auckland route; Philippine Airlines began operating nonstop flights between Manila and Auckland in late 2017.

New Zealand is ripe for LCC stimulation 

It is hard to imagine Jetstar remaining the only LCC in the New Zealand market for long.

Following Air New Zealand's termination of the JV with Virgin Australia, the Australian carrier's LCC subsidiary Tigerair Australia is highly likely to enter this market in 2019. A second LCC in the cross Tasman market could prompt a resumption of expansion from Jetstar (as well as lower fares from Jetstar, which are not particularly low by normal LCC standards). 

New Zealand’s very low LCC penetration rate and rapid international growth should also make New Zealand attractive to Asian LCCs seeking new markets for their expanding widebody fleets.

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