The case for Air NZ focusing more on its freight operations

New Zealand’s vulnerability in terms of air and shipping services has been among the ominous consequences of the Covid-19 pandemic.  Air NZ has parked its fleet of eight Boeing 777-200 and seven Boeing 777-300 and reckons they will never fly them again. All its international services are based on its Boeing 787-9 with the -10 on order. These are providing limited passenger and freight services.

Pure freighter services are provided by Qantas with its cargo Boeing 767s while other carriers offer ad hoc Boeing 747-400 cargo flights.

Shipping is even more compromised with limited and increasingly expensive services to North America and Asia.

In the US the situation is more dire because of the notoriously inefficient and slow-moving container ports on the US west coast.  The east coast is much better but the shipping times via the Panama raise costs for shippers.

ANZ Truckometer points to an economy humming along at an encouraging pace

NZ’s  domestic  economy is  tracking  much  better  than  many predicted, as  it  adjusts  to  something closer to normality   after  the Covid-19  lockdown.  Just  how  well  may  emerge   when  the  Reserve Bank  delivers its  verdict  this  week on  whether   there is  any  need for  new  monetary  policy  moves.

Bank  economists  are  divided  on   the  issue:   some  argue   it  needs  to apply  more  stimulus  through  its  quantitative  easing programme,  others   that  because  the  economy is  doing better than  anyone expected,  there is  no  compelling reason  to  lift the cap  on QE  just yet.

The  most recent  data  on  how the  economy  is  performing  came    from  the  ANZ’s Truckometer,  which   underlines  how  NZ   is  back in business.

ANZ  chief  economist  Sharon  Zollner  reported the Light Traffic Index lifted 5.6% in July, while the Heavy Traffic rose 2.7%.

Light traffic in the month of July was 9.5% higher than the same month the previous year while heavy traffic is up 10.2% on year-ago levels.

Sapere report says there’s no need for haste on Auckland port freight decision

By Barrie Saunders (who chaired the Port CEO Group from 2002-2015, and has his own blogsite www.barriesaunders.wordpress.com ) 

The most interesting thing about the Ministry of Transport-commissioned Sapere report on the future of POAL’s freight operations is that, compared with the status quo, all options will add costs to the economy.

However Sapere’s terms of reference required it to assume POAL’s freight operations would have to move sometime, so the question was when does this have to happen and where is best?

A new port at Manukau is assessed as the least expensive option, producing net benefits of -$1,982 million net present value, and the Firth of Thames is the most expensive at -$7,294 million.  Moving the entire freight operation to Northport was estimated to be a net -$6,252 million, Port of Tauranga (POT) a net -$3,703 million and a shared Northport – POT a net -$6,847 million.

Sapere helpfully provides an explanation as to why its conclusions materially differ from those of the Wayne Brown-led Working Group.   A key point is that they took a 60-year perspective rather than Brown’s 30-year.   (See page 15 of the executive summary – Sapere “Analysis of the Upper North island Supply Chain Strategy Working Group Options for moving freight from the Ports of Auckland”.

POAL – Aucklanders (not the government) should decide its future

Barrie Saunders writes…

One of the 1984-90 Lange-Douglas government’s most successful reforms is now at serious risk, because of a self-serving political campaign by NZ First, aided and abetted by others driving their own agendas.

In 1988 the Port Companies Act came into operation, which commercialised New Zealand’s ports and required them to operate as a “successful business”.   At the same time the failed New Zealand Ports Authority was disbanded and harbour regulatory functions were left with local government.

The reforms worked extraordinarily well as the port companies became very efficient and cost-effective.  Some including the ports of Auckland, Tauranga, Timaru, Napier, Lyttelton and Bluff, ended up at various stages with private shareholdings, but the local authorities typically held the majority of shares, and some partially privatised were later bought back.  Undoubtedly the private shareholding improved the performance of port companies.

Light rail was promoted as a “game changer” – but govt must change gear (and the minister, maybe) to quicken the pace

We wonder if there is any surprise among readers that the  Ardern  government   has  made a hash  of  delivering    another  of its   flagship   policies, Auckland’s light  rail  project.

Ardern  labelled the project  to build  light  rail from  Auckland city to  the airport  a  “game changer”.  And  she  promised  to extend it to  Mt Roskill within four years  of taking office.

This  week   deputy PM  Winston Peters   told  Parliament “exploratory” work has  still to be  completed.

As  Point of Order sees it, those who wonder why the project  is close to  foundering should ask who is in  charge of the  project.  They will find it is  Phil Twyford,  whose  performance  with KiwiBuild  was so disappointing – and became so politically embarrassing – that the PM this year gave ministerial responsibility to someone else.

Twyford retained   Transport, though  Ardern’s  judgement was questionable.

Simply,   the  government’s  excuse  in blaming   failures  on   “nine years  of neglect”  by  the   previous   government is  coming back to haunt ministers  like Twyford.  For if  ministers  in the previous  government  didn’t  do their job,  how  come  the  current  crop  so neglected  the preparation and implementation of a better policy that  they are  failing  even more spectacularly to deliver  what they promised?

Twyford, of course, shuffles off  responsibility for  the  botch-up to the  NZ  Transport  Agency  and the  new  chairman of  the  agency, Sir Brian Roche,  concedes  it  did  “drop  the  ball” —but  where does   this leave  the  principle of  ministerial responsibility?

Opposition  Leader Simon Bridges opened   question time in Parliament  on  Wednesday  by asking the PM when construction  would begin on  light  rail  in Auckland. This  was the  answer he  got  from the  deputy PM  (standing  in for  Ardern)::

“Like every person that understands both transport and business, when we have the forward costings organised, all the engineering reports, and all the alternative views are put on the table, then we will make a commercial decision”. 

That doesn’t  sound   like any  time soon.

Here’s  another  exchange  from  Parliament on Wednesday:

Chris  Bishop  ( Opposition—Hutt  South)  : Is it correct that the government is assessing only two bids for the Auckland light rail project—one from the NZTA, and one from NZ Infra—and, if so, is he confident that the Crown will receive value for money from this procurement process?

Twyford: After years of under-investment in our largest city’s transport system and the gridlock that that caused, our government is determined to build the transport networks that a modern international city needs. It’s not correct to characterise the process as containing only two bids. Cabinet has asked the Ministry of Transport (MOT) to run a competitive process between two approaches. One is the proposal from NZ Infra which would see it finance, build, own, and operate the light rail lines, and the other approach, being developed by NZTA.

According to  reports, Treasury has warned the government that getting it wrong could see the cost of the $6bn project balloon like Edinburgh’s light rail, which took six years to build and cost twice its initial estimate.

In August the government said work wouldn’t even start in 2020, as it still had to weigh up who would build and run the scheme, NZTA, its own transport agency – or the NZ Super Fund, which made a surprise, unsolicited offer to build and run the project in April last year.

A   report  by Stuff  contended Twyford was warned by officials the NZ Super Fund bid wasn’t up to scratch. In fact, the initial bid was just six power-point slides.

Twyford now says Cabinet has asked the Ministry of Transport to run a competitive process between  two approaches. One is the proposal from NZ Infra, which would see it finance, build, own, and operate the light rail lines; the other approach being developed by NZTA would include the more conventional public-private partnership (PPP), or design and build models.

Early next year, Cabinet will decide which of these two approaches it prefers.

Clearly   it will be a  slow  march to  end   Auckland’s  gridlock.

Non-stop Air NZ flights to New York reflect changes in the aviation market

What do we make of the Air New Zealand decision to quit the Auckland-Los Angeles-London route?  Nothing much as it simply reflects the changing dynamics of the airline industry.

Gone are the days when Air NZ took the McDonnell Douglas DC-10-30 into the fleet and began flying Los Angeles, then the UK.  Most New Zealanders heading offshore had London as their destination.

To circumvent awkward international air services agreements, Air NZ was obliged to code-share with British Airways on the route to London, which in those days meant Gatwick Airport.

Then  Air NZ bought the Boeing 747-200 and Prime Minister Robert Muldoon over-rode strong Air NZ opposition to require the new 747s to be fitted with Rolls Royce RB211 engines.

Air NZ’s regional challenge: French-Italian aircraft may help the airline fly into smaller airports

Air NZ’s new CEO, Greg Foran,  will  have  much on his plate when  he  moves into the job. Early on the agenda should be a shake-up of regional air services.

Out in the provinces there’s a strongly held view the airline doesn’t care that much beyond the main trunk and places like Queenstown.  Air Chathams has stepped in but its problem is that of a small company with an elderly fleet including  a WWII DC-3, with one exception, its ATR-72. It is understandably  reluctant to nudge its large neighbour too hard having witnessed what happened to others.

Air NZ is rolling its Mount Cook ATR72 fleet and Air Nelson’s Q300 into one consolidated air operator’s certificate and this will have wider implications. The rationale for splitting the company’s domestic operations in three was to avoid the “stove piping” effect where pilots would move seamlessly from being, say, an Q300 first officer to an ATR72 first officer, then a similar position on an Airbus A320. By keeping pilots on three different company employment contracts, costs could be held.

POAL move to Northport – “pork on steroids”?

by BARRIE SAUNDERS

(Barrie was chair of the 13-member Port CEO Group from 2002 to 2015)

No one wins a prize for guessing the Wayne Brown-led second interim working group report would produce anything other than more arguments to close down all of Ports of Auckland’s (POAL) freight operations and move it to Northport, adjacent to the Marsden Point refinery.  Cruise vessels would remain in Auckland.

A study was agreed between NZ First and the Labour Party as part of the coalition agreement.  NZ First proposed in 2017 the cars be moved to Northport by the end of 2019, and the rest of the freight by 2027.

This is a politically driven proposition, not one arising from a neutral study required to properly assess all the options.  A final report is expected before Christmas and at some point the Labour Party will have to determine its view.

The essence of the Brown team’s proposal is:

• Upgrading the rail line from Auckland north to take high cube containers and a lot more rail traffic;
• Adding a spur rail line to Northport at Marsden Point;
• Establishing a new inland road/rail port in north-west Auckland;
• Building a four-lane highway from Auckland to Whangarei; and,
• A major expansion of Northport to accommodate the extra containers, cars and other freight.

The cost: maybe $10 billion, but it’s not clear what’s included in this number.

Good for Northlanders – but how about the rest of taxpayers?

Hosannas for one of the latest handouts from the so-called Provincial Growth Fund – a $94.8m “investment” to bring up to operational standard a 54km section of the Northland rail line – were muted, not surprisingly.

NZ’s state-owned KiwiRail, which racked up a $235m loss in the 2018 year, and a $197m loss the year before that, looks as if it will be saddled with yet more loss-making services – but Deputy PM Winston Peters justifies the investment on the grounds the rail line to Whangarei would otherwise become “unsafe” and have to close within 5 years.

Time for a new airport on the North Shore?

Air NZ CEO Chris Luxon raised Defence hackles with his proposal to use the RNZAF base Whenuapai for commercial services. The air force has long resisted this for reasons of security, safety and the absence of land for passenger terminals and parking.

Cynics reckon this is an opening salvo from Luxon who seems headed to Parliament sooner rather than later. Sometimes the airline thinks it is the only business in town.