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Air New Zealand orders up to 12 ATR72-600s for rapid regional expansion

Air New Zealand's order today for up to 12 ATR72-600 turboprop aircraft will require the airline to more heavily market regional New Zealand in overseas destinations, particularly in Australia.

Over the past eight years ANZ's regional network has grown at an average clip of 5.6% per annum -- even factoring in the global financial crisis. "Clearly this commitment for these additional aircraft is testament to our belief that we will continue to see growth at those levels going forward," ANZ chief executive Rob Fyfe says in Auckland.

No immediate retirement plans

ANZ does not plan to retire any of its regional aircraft, which include ATR72-500s, Bombardier Q300s and Beechcraft 1900Ds. "It's all about growth. It's testament to our belief in the strength of the domestic economy," Mr Fyfe adds.

ANZ's first two of seven firm ATR72-600s will be delivered in Oct-2012 and Dec-2012 with two frames in 2013 and a single frame for the following three years. Five options are available for delivery between 2014 and 2016. ATR has been gaining significant marketshare of the turboprop market and expects further progress. Its ATR72-600 is a modern version of the -500 variant and features a new interior design as well as glass cockpit that is particularly beneficial on required navigation performance routes. RNP enables airlines to land aircraft at airports with previously prohibitive low cloud level. Before ANZ deployed RNP technology, it experienced 42 annual days of closure at Queenstown airport. Now ANZ experiences 17 annual days of closure.

Each ATR72-600 will typically operate eight one-way sectors a day, or approximately 56 additional roundtrip flights a week. ANZ currently operates approximately 4000 flights a week across its network, the majority of which are on regional and provincial routes, Mr Fyfe says. With all options exercised for a total of 12 ATR72-600s, ANZ can add 672 flights a week in a country with a population of only 4.3 million. ANZ will add two million regional seats to its network over the next few years.

"Today's significant capital investment also signals we'll also be upping our promotion of key regional centres both at home in New Zealand and overseas, particularly in Australia, in order to fill additional capacity," ANZ group general manager shorthaul airlines Bruce Parton says. He expects most tourism growth in New Zealand to come from visits to regional centres.

Capacity trade-up, with continuously decreasing fares

ANZ is evaluating new routes for the ATR72-600s but expects its initial deployment to be on existing routes served by 50-seat Q300s (such as Auckland-Nelson, Auckland-New Plymouth), allowing ANZ to progressively trade up capacity. Q300s freed up by ATR72-600s can take over some B1900s and also open more medium-sized markets. "You can see the benefit from bringing in a large turboprop aircraft and have it cascade across New Zealand, which we think will provide growth across all 27 of our ports," Mr Parton says.

Increasing frequency is important for the corporate market, but for the leisure segment ANZ is working to reduce fares on regional routes, which it has a near monopoly on. Customer stirrings saw ANZ introduce its "Starfish" discount card which for NZD200 (USD159) or NZD800 (USD636) give a respective 15% or 30% discount on almost all regional fares. Mr Parton says there has been an average regional fare reduction of 9% over the past two years despite soaring fuel prices. "We really try to encourage fuller loads and lower average fares," he says.

Fleet to be owned and likely based at Auckland

ANZ's order is subject to contract finalisation. ANZ expects the majority of its fleet to be owned. The carrier over the past 18 months has bought out the leases of its ATR72-500s, which it expects to to keep until the end of their service life. ANZ has 11 ATR72-500s with an average age of 10.5 years. Mr Fyfe expects ANZ to order replacement aircraft in eight to 12 years.

The forthcoming ATR72-600 fleet, selected after a competition, will likely be based in Auckland due to the growth ANZ is seeing out of the country's largest city. ANZ's subsidiaries have regional bases at Christchurch, Hamilton and Nelson. ANZ has also yet to decide if it will operate the aircraft or if one of its subsidiaries will operate them.

ANZ like other global carriers is struggling to identify a suitable replacement for its 19-seat B1900Ds. ANZ may ultimately have to introduce more capacity on existing B1900D routes if current discussions with airframe manufacturers do not yield a suitable replacement in the medium/long-term.

Air New Zealand regional fleet in service (19-Oct-2011)

Type In Operation On Order

Average Age

(Years)

Average Utilisation

(Hours/Day)

ATR72-600 - 7 with 5 options - -
ATR72-500 11 - 10.5 7:06
Q300 23 - 4.4 6:53
B1900D 18 - 9.5 6:09