Airline loads on transtasman flights are under pressure, according to latest data, with all airlines flying the Tasman routes having carried fewer passengers in the past six to nine months.
Forsyth Barr broker Damian Foster said the latest data was in contrast to the strong upwards trend in passenger loads since late 2011. Moreover, industry feedback suggested yields were also under pressure.
There were several drivers affecting the Tasman sector economics, he said.
Capacity across the Tasman was at its highest in five years. In the year to July, capacity grew by about 6.2%. Qantas and Jetstar had grown capacity the most, rising 10% compared with Air New Zealand’s 3.5%.
There had been slowing growth in New Zealand-resident Tasman departures. The growth rate had slowed to 2% on a 12-month rolling basis against the previous corresponding period. New Zealand residents accounted for about 30% of Tasman traffic.
"While Chinese arrivals remain in strong growth, they are increasingly arriving direct from China rather than via Australia. We recognise this is more of a long-term trend than a major influence of Tasman sector near-term economics."
Long-haul passengers connecting to and from New Zealand and Australia had more options than before following the start of new direct services. Those included Emirates from Auckland to Dubai and Air Canada from Brisbane to Vancouver, Mr Foster said.
The Tasman was an important market for Air NZ, contributing more than 20% of group revenue. While the market structure had not changed in recent years, since the start of the joint venture between Qantas and Emirates in 2013, supply from incumbents, including Air NZ, was outstripping demand.
"Steel Wheels" data from KiwiRail showed increasing volumes of non-bulk rail cargo in New Zealand. In the year ended September, non-bulk volume — including import and export cargo, domestic retail and domestic freight forwards — increased 14% on a net tonne per kilometre basis, with growth accelerating during the past 18 months, he said.
"This reflects the increasing commercial nature of KiwiRail and improving rail solutions for line-haul customers."
Although non-bulk volumes were growing, bulk volumes remained in decline. Forestry-related rail volumes were down 7% in the year to September and other bulk was down 20%. With improving log exports, Mr Foster expected a recovery in forestry rail volumes in the year ahead.
Mainfreight’s use of rail continued to increase and it was one of KiwiRail’s largest customers. Recently opened facilities at Hamilton and Christchurch were rail enabled. However, as other industry participants continued to consume more rail capacity, rolling stock available for Mainfreight and other forwarders, together with service capability, could be compromised without additional KiwiRail investment in engines, wagons and infrastructure, he said.
Mainfreight would increasingly be driven by offshore operations but the strong domestic backdrop was supportive of accelerated near-term earnings growth.
Port of Tauranga was generating strong growth through its Auckland rail-served inland port, MetroPort.
Increasing MetroPort volumes meant the need for more rail services between Auckland and Tauranga.
"This is likely to create congestion problems with commuter trains, particularly between Wiri and Westfield, where a third rail line will be increasingly necessary."
The recently announced reopening of the Napier-Wairoa line for export logs came from a commercial arrangement between Napier Port and KiwiRail. That highlighted the potential for ports and other industry stakeholders to participate in infrastructure decision-making with KiwiRail for commercial outcomes, Mr Foster said.
Key themes
• Rising Tasman capacity is denting airline performance
• Domestic non-bulk rail cargo is rising
• Log exports are recovering after several years of decline
Stock preferences
Mainfreight: Outperform
Air New Zealand, Freightways, Fliway: Neutral
Auckland Airport, Port of Tauranga: Underperform
