Air Vanuatu Plans Major Domestic And International Expansion

Transcript

Derek Nice:I think that the, the A220 is going to be transformative for us. It's the aircraft that is going to allow us to increase connectivity into Vanuatu. So today we've been constrained by, first of all, operating a very large aircraft, a very good aircraft, but one that delivers 170 seats every time it arrives in Vanuatu, and that constrains our ability to offer connectivity because we are limited in the number of frequencies that we can offer in most of our markets simply because the aircraft is so large. The 220 with either 108 seats or 133 is, is right-sized for most of our markets. So it allows us to increase frequency in, for example, Brisbane from 3 or 4 flights a week to 7 flights a week with very little impact on seat-mile costs, but with a huge impact on connectivity, allowing us to connect to many more long-haul flights and also to domestic connections throughout Australia. The same will be true in Sydney. The aircraft will allow us to increase frequency much more rapidly into markets like Melbourne, Nouméa, Nadi, and also to expand into other markets— Christchurch, for example, potentially Adelaide and other smaller cities in the region. We've ordered 2 versions of the A220. We've ordered the A220-300 and the A220-100. So the 300 will be delivered to us in a 133-seat configuration, and so that will be 8 business class and 125 economy. And the 100 will be delivered in a 108-seat configuration, so again, 8 business class, 100 economy. So the, the first aircraft will arrive in June of next year, and that aircraft will replace a wet-leased Boeing 737, so we won't actually be increasing capacity, but that first aircraft is going to deliver some substantial economies, cost savings, and efficiencies. The second aircraft will arrive in October of 2020. That will be our first growth aircraft and will allow us to transition from the ATR to jet service on some of our regional routes and also to increase frequency into some of our other destinations, again into Brisbane and possibly some sustain frequency through the off-peak periods on some of the other routes. And then after that, we'll be getting aircraft in 2021, 2022, and those aircraft will be committed to growth. In total, we've got 4 firm orders and 4 options. The 2021 and 2022 will be growth aircraft, and then we'll see how we're performing. And if we're following the business plan, then we'll be able to order those or confirm those option aircraft for '23 and beyond. We think that the demand for travel to Vanuatu is increasing very rapidly. I think we talked earlier about the Chinese market, and it's not just China, but we're seeing the rest of Asia is currently growing at about 12% a year consistently for the last 5 or 6 years. We're seeing Europe growing into Vanuatu at about 7.5% a year consistently, and North America at about 5% a year consistently. We think the constraint right now is connectivity. And so as we solve that problem with more capacity, we think that growth will continue or might even accelerate. Yeah, so we're building a business plan around a growth projection of 10% a year on average. And we see that by 2030 that we'll be carrying about 3 times the number of passengers that we're carrying right now. And the mix will change with many more of those passengers being connecting passengers out of Asia, again out of North America and Europe. But also many more point-to-point passengers originating in Vanuatu rather than inbound tourist passengers. And so we see a much more balanced mix of passenger traffic on the network over the coming 10 years. So 20% of our traffic right now originates in, in Vanuatu, 80% originates outside the, outside the country. About 2/3 of our traffic comes from the Oceania region, including Australia and New Zealand, and about a third comes from long-haul markets. But we see the long-haul markets growing, so potentially more than half of the traffic could be long-haul in, again, over the next 10 years. We're carrying in total, we're carrying about 500,000 to 600,000 passengers a year right now, and that's a mix of domestic passengers and international. But of course, many of those international passengers are connecting onto the domestic flights, and we see that balance continuing as the domestic market grows very substantially as well. but probably will carry more international passengers than domestic in the years to come. Yes, so the first thing that will happen is that the A220s will replace the ATRs on ATR flights on some of the regional routes, and that will allow us to increase the utilization of the ATR on the domestic trunk routes. As we get more A220s, we'll be able to bring those onto the trunk routes as well. And right now, the government has a project to upgrade other airports in the country so that we can connect every provincial capital with ATR service. And so we anticipate that we'll be increasing the number of ATRs in the fleet as well. Right now we're operating a relatively old fleet of Twin Otters and Islanders. All of them are more than 40 years old, and so part of our plan is that they will be replaced as well, although we haven't made a decision yet on which aircraft type will replace them. Those aircraft are flying into our much smaller airports. Most of them are grass runways, and so we need an aircraft that has good short takeoff performance and is probably in the, in the 10 to 20 seat range. New Twin Otters for sure, perhaps Caravans, other aircraft types in that, in that size. We fly to 26 airports in the country. 3 of them are paved right now, and the government's plan is to bring another 3, to pave another 3 runways, so we'll have 6 paved runways in total by about 2022, and that will facilitate ATR A220 service on those 6 airports. The other 20 airports will probably continue to be grass or crushed gravel, so we'll always have a need for the smaller fleet. What we want to do is we want to integrate the smaller fleet into the larger operation from an operational point of view. So we're focusing on building a system Where we will be able to recruit pilots, bring them through our cadet pilot program onto the smaller fleet. The new aircraft will all have glass cockpits. We'll be operating a multi-crew environment so that we can give them the experience that they'll need so that they can step up to the right seat on the ATRs and the jets. So we have a plan to to increase the number of local pilots in the fleet, or in the operation, but also to accelerate their progression through the organization and onto the jets. So all of those airports are potential tourism destinations, and over time, over the next 10 years, will become significant tourism destinations. Right now, we have 5 or 6 airports that are seeing substantial tourism. Now, from— that's from our perspective as a relative. But those demand into those 5 or 6 airports is growing very rapidly. So, for example, we, we fly into Tanna, our 3rd busiest destination, but that has the potential to be one of the biggest tourism markets in Vanuatu in the, in the coming years as, as we develop the infrastructure around Mount Yasur, the volcano, the active volcano. That is currently seeing huge interest from international visitors, and we see other destinations in Vanuatu developing the same way. No, our role is the last mile, so our role is to bring visitors from the major hubs in the Oceania region into Vanuatu. So those major hubs are Auckland, Sydney, Brisbane, Fiji, And perhaps Singapore. And so we need to partner with other airlines who will bring those passengers into those hubs, and then we'll connect from there into, into Vanuatu. Yeah, so we have an existing relationship with Qantas. We have a relationship with Fiji Airways and with other carriers in the region. We codeshare with Air Kalin, for example, and and New Guinea. And so we'll be expanding all of those relationships and we'll be adding some, some additional, additional relationships as well. I think the entire region is seeing massive growth in the inbound tourism market out of Asia and China in particular. I think that that wave hit Australia and New Zealand a few years ago and now it's moved on to Vanuatu and the other islands in the South Pacific. So we've been seeing substantial growth over the last decade in inbound tourism from Asia. The World Bank is estimating that the China market, for example, will continue to grow at 20% a year for the next 10 to 20 years. We think that the Chinese market will, in terms of the dollar impact on the economy, will grow to be greater than Australia over the next 10 years and will challenge Australia in terms of passenger numbers or tourism arrivals. But we're also seeing strong growth out of Korea, out of Japan, out of India, but all from a smaller base than China today. But if growth continues out from those markets at the same rate that they— we've seen in the last few years, they will also be very, very substantial markets for us. So what does that mean? That means we've got to think carefully about how we enhance the visitor experience, We have to, we have to ensure that we have an infrastructure that's friendlier for the, for Asian visitors. So in terms of signage, in terms of helping the tour operators and the resorts upgrade their capability to handle inbound tourism out of Asia. But I think we're working together with them and we all have identified the need for us to make that transition. to be a friendly destination for those visitors. Right now it's a small base, but we would estimate that we will see that going up by a factor of 10 over the next 10 years. We think that we could be seeing, in terms of travelers, or passengers I should say, we would be seeing well over 100,000 passengers a year coming into Vanuatu But then there's also the market for us to connect those passengers on to other destinations. So one of the big trends we're seeing is, is the rise in multi-destination travel. So packaging Vanuatu with Fiji or Vanuatu with Solomon Islands. And so that will increase the number of travelers or passengers even, even further.

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