CCT's Response to Air New Zealand Cancelling Japanese Service
2 April 2015
By Tim Hunter, CEO, Christchurch & Canterbury Tourism
When flights from Japan kicked off in the 1980s the New Zealand holiday proposition was built around the superb South Island visitor experiences that the Japanese travellers so quickly embraced. It was like turning on a goldmine. Having just been to Kiwi Link Japan I can confirm that this is still the case – the majority of Japanese visitor nights are in the South Island. 80% of the New Zealand companies exhibiting at Kiwi Link this year were from the South Island.
CCT became concerned about the state of the direct service last year when the 2014/15 summer schedule indicated a cut back to just 57 direct flights. At the same time Christchurch services were downgraded from 777 to 767 aircraft. In July 2014 we lobbied the airline on the basis that the lack of frequency would compromise the sustainability of the service. Based on rising demand from the Japanese holiday market and improved load factors this summer on the Tokyo-Christchurch route (80% plus) we felt that the validation of the Christchurch services was heading in the right direction. Unfortunately that was not the case.
After 26 years of direct connection with Japan it is hugely disappointing for Christchurch to lose its direct Air New Zealand connection from Japan.
Tim Hunter, CEO, Christchurch & Canterbury Tourism
The Air New Zealand decision to exit the route
Air New Zealand’s decision to discontinue Japan - Christchurch operations appears to have been based on five factors influencing the airline’s commercial decision making. These aspects are not new and have been prevalent over the past nine years as Air New Zealand has gradually reduced its Christchurch bound flight capacity from 99,000 seats in 2004/05 to just 13,400 seats in 2014/15. The thin edge of the wedge went in many years ago – the decision this week is in fact the end of a long process to hub and spoke the Japan inbound market over Auckland.
In the Air New Zealand world the primary reasons for axing the service are:
- Whilst the Tokyo-Christchurch flights have enjoyed strong demand from the Japan end of the route, limited outbound demand from South Islanders and low levels of Business Class traffic have impaired the attractiveness of the Christchurch route.
- Because Air NZ choose to operate only the southbound Narita-Christchurch leg as a direct flight they incurred unwanted costs operating the CHC-AKL of the NRT-CHC-AKL-NRT triangle due to the need to position new crews for this domestic leg. Auckland Airport have made this more difficult with the transition from 767 to 787 aircraft by claiming that the 787 is too big to be parked at the domestic terminal in Auckland. (From our perspective we see this yet another Auckland Airport tactic to have the Christchurch flights terminated).
- Seasonal operations between December and March on a three day a week basis have made it hard to develop a long term cargo market; further compromised by the fact that the northbound aircraft terminates in Auckland so northbound cargo has to be transhipped.
- The 767 allocated to the Christchurch services had no premium economy cabin which is a product that is in high demand from Japanese FIT travelers. Over the 2014/15 summer we saw much of the higher yield traffic gravitating to the Auckland route which offered a mix of B777 and 787 aircraft - both with Premium Economy and Business Premier cabins.
- The airline under the Christopher Luxon management regime has made a conscious decision to base all long haul aircraft and crew out of Auckland and service the rest of New Zealand from the Auckland hub.
Of these five factors the “Auckland long haul hub strategy” appears to have been the most influential in the commercial decision that Air New Zealand has made.
Despite the higher cost of operating the triangular route that Tokyo-Christchurch involves, the summer season services to Christchurch have still been profitable for the airline. Despite this Air New Zealand believe that a hubbed operation though Auckland will be more profitable. With overall Japan – Auckland capacity growth planned at 12% in the next year Air New Zealand have expressed confidence that the South Island will get the corresponding benefit of this new capacity.
What does CCT think this means for our Japanese tourism flows?
Whilst in the summer months it makes the South Island harder to access and potentially more expensive, it is unlikely to be a catastrophe. Why? Because before this decision was made there were 308 days of the year when there was no direct flight service to Christchurch, and… Japanese visitors still came to the South Island.
The South Island may however see slower growth from Japan in the forthcoming summer than the North Island, because :
- Tokyo–Auckland fares will be permanently cheaper than Tokyo–Christchurch and Tokyo–Queenstown fares.
- Seat availability on the domestic legs on the Auckland-Christchurch may be restricted because of heavy summer demand. Given that more than 50% of the Tokyo-Christchurch traffic is currently made up of tour groups, trying to fit these groups onto individual A320 services could be difficult. If Air New Zealand tries to drip feed this traffic onto multiple domestic flights it will create a headache for group tour operators that will ripple right back to the marketplace.
Will the travel patterns change?
For Group Tours : We think this is unlikely as Japanese travel companies have a very fixed view of what they want their visitors to experience. We could however see a swing to the South Island portion of itineraries commencing in Queenstown if air seats on the AKL-CHC route are not easily available.
For FIT travelers : We will have to wait and see but the relatively cheaper prices for air fares into Auckland could swing more business away from the South Island.
What are CCT doing about it?
Whilst neither we nor CIAL have been able to change Air New Zealand’s decision we have lobbied hard to limit the impact of the change and have asked for more specific commitments to increasing Auckland-Christchurch seat capacity around Japan flight schedules.
Air New Zealand have indicated that a) Christchurch will get an extra 130,000 domestic seats which is equivalent to 14 extra jet services per week and b) because the airline now prioritises bookings by “total itinerary value”, overseas markets will get booking priority over most domestic travelers.
Scott Carr who is Air New Zealand’s Regional Manager in Japan has indicated to me that he will personally advocate for all group bookings originating in Japan to get priority in terms of access to seats on the domestic network and he is prepared to personally intervene if group bookings from Japan are unable to be confirmed on the domestic sectors.
As we go into the 2015/16 summer CCT will use its trade contacts with Japanese travel sellers and IBOs to closely monitor whether the lack of direct flights is costing us market share in terms of visitor nights in the South Island. If we see that we are being compromised we will be go back to both the airline to seek a further review of the route termination.
What further can be done to counteract the negative effects of the Tokyo-Christchurch route loss
- Engage more actively with other international airline carriers who see opportunities in the Japan travel market into Christchurch.
- Qantas plan to double their route capacity from Japan to Australia in August 2015 and we will explore whether trans Tasman schedules can be adjusted to feed more Japan origin traffic into Christchurch.
- If the proposed Air NZ changes do not deliver positive results for the South island we have the future option of working with high volume travel sellers in Japan to establish a regular summer charter programme into Christchurch.
In Closing : What about the customer?
Let’s just focus on the “customer” for a moment and the fact that great products are “easy to think of, easy to buy and easy to use”.
Think about this:
- The inbound market from Japan to New Zealand grew 9% per annum in the past year and a whopping 20% over the this recent summer. This is a market that loves New Zealand and sees the rest of the world as not as safe as it could be at the moment.
- The Japanese holiday market makes up nearly 74% of the total inbound Japanese market.
- Every month for the next decade increasingly more Japanese will retire and will have the savings and time freedom to explore the world.
- Smart marketers would make it easier for these high value visitors to fly straight into the tourism region they want to visit the most (the South Island).
Cutting the Christchurch direct services will test whether the strength of the South Island holiday proposition can overcome the imposition of having to connect through Auckland for every journey.
It will be interesting to see how Japanese travelers will respond. We will keep you posted.