Aviation Sector Awaits A380 Effect

In 2005 the Airbus A380 finally took to the skies. Singapore Airlines will be the first to fly the new plane - it hopes later this year, barring any more delays in testing.

And the giant jet - while not expected to be a regular visitor to Auckland, will be flying not too far from us, with Singapore Airlines first deploying it on the Sydney-Singapore-London route.

There is a total of 159 "orders and commitments" for the massive new plane, though not all are for the passenger model, with the world's cargo operators keen to start using the freighter version, which is yet to fly.

The impact of the plane on world aviation has been debated for years. Airbus says it may have the same kind of effect as the introduction of the Boeing 747 in the late 1960s - dramatically lowering the cost of air travel.

Emirates, the Dubai-based airline that has been flying to New Zealand for just over two years, may again shake up the local aviation scene with its anticipated Auckland-Dubai direct flights.

With the biggest single order for A380s among the world's airlines, there's every chance that a few of the 48 white and gold Emirates double-decked jumbo jets will be making the flight to New Zealand - tacked onto Australia-Dubai services.

Emirates New Zealand head Chris Lethbridge says more direct services between the Middle East and New Zealand will allow the airline to better target the European market.

Such a move will open up a rival direct route to Europe for New Zealand travellers, who now travel via Asian hubs such as Singapore and Hong Kong, or US cities such as Los Angeles.

Lethbridge says Dubai is now established as an alternative stopover destination for New Zealanders travelling to Europe, a status that can only improve with the introduction of Auckland-Dubai nonstop flights.

"Dubai has certainly become the flavour of the month with New Zealand tourism as a stopover," he says. What was previously unheard of and difficult to get to now features on the itineraries of many Kiwi travellers.

The state of the business in New Zealand is absolutely superb, says Lethbridge, with very strong forward loads. "From a growth point of view, we've had a tremendous year this year."

Emirates won an airline of the year award from one of the major aviation consultancies in the region, the Centre for Asia Pacific Aviation. At a recent conference sponsored by the centre, the head of its financial analysis unit, Timothy Ross, said the recent outsourcing move by Air New Zealand and the likelihood that Qantas may head down the same path could be the start of an industry-wide trend.

Centre director Peter Harbison says 2006 may be "the quiet before the storm" - a period when airlines need to consolidate and put in place the necessary foundations for a massive upgrading of fleets and route systems.

In the centre's roundup of the region's airlines, Air New Zealand's relentless attack on operating costs is heartily endorsed.

"Air New Zealand's progress towards establishing itself as a viable, long-term competitor in its own right will depend on the airline's ability to further reduce operating costs to strengthen returns - in particular on the Tasman.

"As with Qantas, the airline is driving to enhance productivity through progressive labour reforms and more flexible working. It is improbable that these changes will be introduced without upheaval."

For Air New Zealand, 2006 will be the first full year in the job for new chief executive Rob Fyfe, who as former No 2 took over the top job from Ralph Norris.

The first few months of this year will be dominated by the plan to outsource all heavy maintenance of its long-haul fleet, with the possible loss of 600 jobs.

Some way of staunching heavy losses on the "bloodbath" Tasman routes is also being pursued by the airline as it investigates different ways of cutting capacity.

Any such cut needs Qantas to play its part too, which will attract the gaze of anti-competition authorities, particularly our own Commerce Commission, which spent the best part of two years investigating and ultimately rejecting an earlier application from the two airlines for a merger/alliance.

By the end of next year Air New Zealand would have finished revitalising its long-haul fleet of aircraft. This involves the complete refit of its Boeing 747-400s.

New Boeing 777 aircraft are arriving, with the full complement of eight to be in service by the end of this year. On the Tasman and Pacific services, where low-cost rivals are making inroads, Air New Zealand is merging its fleet of A320 planes with those flying the Freedom brand, putting them all into one operating unit.

Customers, says the airline, should not notice any difference in service.

Airline analyst at Goldman Sachs JB Were, Peter Sigley, says he is interested the kind of impact Emirates and the introduction of the A380 might have in this part of the world. There is a chance Emirates could even fly it across the Tasman, as part of its Dubai-Australia services.

Sigley is looking for 2006 to be the year when restructuring, rebranding and changes of the past few years will be truly put to the test at Air New Zealand - when we see if they will make a meaningful difference to the bottom line.

"Our expectation would be that 2006 could be a relatively slow year in terms of the [visitor] arrivals environment, in which terms a lot of what they are doing could be around regaining market share," he says.

Sigley says another thing to watch for this year is the possible announcement of new routes into Asia (a Shanghai service is in the advanced planning stages) and the possibility of new flights into the UK.

When it comes to the ailing Air New Zealand share price, Sigley says prospects for a recovery are "starting to look quite reasonable".

"Maybe they've just turned the corner. When you see airlines start to perform, they tend to do it with a bang - when it happens, it happens quickly.

"Without wanting to prejudge it, there are signs that things are coming into alignment."

The spin-off

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