Loan Stabilises Air Chathams, but CEO Warns of Deeper Industry Issues

A $17.2 million Government loan to Air Chathams is expected to stabilise operations, but CEO said broader industry reform is needed to ensure the viability of regional air services. 

Last week, the Government announced it would be giving Air Chathams a $17.2 million loan from the Regional Infrastructure Fund. 

Associate Transport Minister James Meager said regional connectivity is vital for the country's economic and social wellbeing, and the loan is aimed at easing pressure on airlines maintaining regional routes.

Air Chathams Chief Executive Duanne Emeny said its operating costs have increased 35 percent percent since Covid, with fuel prices adding further strain.

He said demand has also dropped over the past two years, forcing airlines to cut flights.

The loan will help refinance exsisting debt and reduce interest costs, freeing up cash for reinvestment, Emeny said. 

"It effectively stabilises our current position by enabling us to swap some of the more expensive debt with our primary lender, with this concessionary fund so that we get a period of time where we don't have interest costs, so you can pull that cash back into the business," he said. 

While the immediate focus is stabilisation, Emeny said the airline will review how it can maintain or restore services.

"Unfortunately it doesn't mean we can rush out and buy an aircraft for the Eastern Bay of Plenty to give you the business hour flights back straight away, but we will be looking at options as we go forward to see how we might be able to do that."

He said stronger backing from businesses in other regions had helped sustain services there, but that level of support had not been seen locally.

"What we've found is in other regions like Whanganui, there's a really strong contingent of support from the business community for air services and the importance of air services and that's led to the growth and development of that service, whereas what we have found in the last few years is that we're not getting that same level of strong support from the Eastern Bay of Plenty."

The airline plans to work with councils and the community to rebuild demand.

Despite welcoming the loan, Emeny said structural changes are needed across the aviation sector.

"Air Chathams and all other regional airlines, including Air New Zealand, are struggling significantly at the moment, obviously, the fuel cost doesn't help, but they were struggling before then."

He said regulatory and operational costs in New Zealand are high, with airlines funding the aviation regulator entirely.

"You pay a lot of money to use airports, you pay a lot of money to use the airways routes between airports, you pay a lot of money for the regulator."

"The regulator in New Zealand is 100% funded by airlines ... we're paying just under half a million dollars a year to the regulator."

These costs make it difficult to justify maintaining low-demand regional routes, he said.

"There are routes in this country that are very profitable and there are others that are very, very marginal. But I would say those marginal routes are also exceptionally important for people that need to travel for health, business and social purposes."

"I think it's time that New Zealand looked at that and said, well, how important is it that people can easily get on an aircraft from their local regional airport and fly into a larger city? And that that flight is frequent and reliable and safe, but doesn't cost more than they can afford."

Emeny pointed to overseas models where governments support less profitable routes.

"There are a lot of models throughout the world where other countries, Canada, USA, Australia, India, Europe, UK, where they look at the routes that are harder to operate, more marginal, commercially. And they look at different mechanisms for how they can support that."

"Our call is for government to actually do some work again in that space."

In the Eastern Bay of Plenty, rising costs and falling demand led to a 45 percent cut in flights to Whakatāne Airport.

However, Emeny said demand through the airline’s interline agreement has been encouraging. 

"We are seeing a lot of people booking through the Air New Zealand websites onto the Auckland to Whakatane service, which is really, really encouraging."

Emeny said this shows how important this route is for business and social connections. 

Emeny remains hopeful the interline agreement can expand internationally, and would greatly benefit the Eastern Bay.