Context for the review

What is New Zealand’s international air transport policy and what does it do?

New Zealand’s international air transport policy sets out the overall framework within which New Zealand negotiates and implements air services agreements, including the approach that will best meet wider economic and social objectives.

What is an air services agreement?

Under international law, government-to-government arrangements enable scheduled international services. Air services agreements set out the routes that can be served by airlines and the number of flights that may be operated. The agreements also cover matters such as which airlines are entitled to use the rights negotiated and how tariffs (prices) are regulated.

New Zealand has air services agreements or arrangements in place with 49 countries or territories.

Who will this policy affect?

In the first instance, the matters covered by the policy principally impact how New Zealand and foreign airlines can enter international aviation markets. As a result of the policy, airlines may be able to access new markets, resulting in increased options for the travelling public.

When was the policy last reviewed?

The last formal review/restatement of the policy was in 1998 (see http://www.beehive.govt.nz/feature/international-air-transport-policy-new-zealand(external link))

Why did you review the policy?

Since 1998, the aviation industry has been subject to a number of shocks including terrorism, pandemics, natural disasters, global and regional financial crises, and fluctuating oil prices. A wider range of stakeholders are now taking an active interest in the policy’s implementation than in 1998. Many of the specific policy objectives, including open skies arrangements with Australia and agreements with APEC economies, have largely been achieved.

At the same time, while some new tourism markets such as China and India are growing rapidly, growth from established markets, with the exception of Australia, has stalled or is in decline.

Airlines have adapted to the changing environment with increased use of new business models including alliance and code-share arrangements and no frills/low cost carrier models.

With all this in mind, it was timely to review the policy to determine if it was still consistent with New Zealand’s overall interests.

What was achieved under the old policy?

Since 1998, we have negotiated some of the most liberal agreements in the world, including open skies agreements with Australia, Canada and the United Kingdom, along with many of our Pacific neighbours. We have established a single aviation market with Australia, which allows Australian and New Zealand airlines to operate domestically within the territory of the other country, and permits the establishment of airlines under joint New Zealand and Australian ownership. Among other things, this agreement has had a significant effect on competition within the domestic market, with Jetstar establishing a network within New Zealand.

We now have air services agreements in place with 20 APEC economies.

These agreements provided additional opportunities for foreign airlines operating to New Zealand, and provided opportunities for Air New Zealand to serve new destinations.

The number of international passenger movements has increased from 5.4 million in 1998 to 9.6 million in 2011.

What does ‘open skies’ mean?

An open skies agreement is an air services agreement that has no limits on the routes or capacity that airlines may offer, has liberal arrangements on foreign ownership and minimises regulation of tariffs.

How many open skies agreements does New Zealand have?

New Zealand has 18 agreements that include all of the open skies elements of fifth freedom traffic rights, no limits on capacity and designation criteria that do not include ‘substantial ownership’. These include major trade and tourism markets such as Australia, the United States and the United Kingdom, and significant aviation markets such as Singapore.

(Fifth freedom traffic rights between two States allow for the putting down or taking on, in the territory of the first State, traffic coming from or destined to a third state.)

The process

What process did you follow in undertaking the review?

The Ministry of Transport released a discussion document on 21 May 2012, calling for submissions on New Zealand’s International Air Transport Policy. Submissions closed on 18 May 2012. Twelve submissions were received representing a variety of interests including airports, airlines, the aviation industry, tourism interests and the general public.

The policy

What has changed as a result of consultation?

As a result of consultation on the discussion document, the following changes have been made:

  • the objective now places greater emphasis on the larger goal of growing the economy
  • there is an increased recognition of the desirability of increasing New Zealand’s connectivity (as well as focusing on key end-to-end markets)
  • the possibility of allowing for services in advance of the necessary negotiations, raised in the consultation document, has been further developed
  • under this, new services to Christchurch would be favourably considered, to assist with recovery from the 2010/11 earthquakes
  • the policy sets out New Zealand’s intention to include a framework for cooperation between civil aviation authorities in air services agreements and arrangements. This has already been done in recent negotiations with China
  • the role of the wider aviation industry has been explicitly recognised
  • ASEAN has been noted as a particular priority for agreements in the multilateral arena

Why was a specific policy for Christchurch put in place?

Where it is in New Zealand’s best interests, the Ministry of Transport will consider granting approval to airlines to operate services ahead of negotiation of the necessary rights. In light of the challenges facing Christchurch as tourism and other businesses recover from the 2010/11 earthquakes, the government has decided it is in New Zealand’s best interests to make it as easy as possible for airlines seeking to offer services to and from Christchurch.

Ownership Policy

What do the changes on ownership policy mean for Air New Zealand?

Changes to the ownership of Air New Zealand are not being considered in the context of this review.

The government remains committed to holding a majority share in Air New Zealand and is considering ownership options in the context of the mixed ownership model.

The Kiwi Share, which the government continues to hold, provides that government approval is required if airlines, or foreign interests, wish to acquire more than a 10 percent share in Air New Zealand. Kiwi Shareholder approval is also required for changes to the company’s name, location and a number of other matters as set out in the Air New Zealand constitution.

The Kiwi Share controls in Air New Zealand’s constitution will continue to take precedence over any changes to general policy being considered in this review.

How will this review affect Air New Zealand’s competitiveness and share value?

The policy is in line with existing policy under which Air New Zealand has largely been successful. The policy will provide opportunities for more competition on some routes. However, in implementing the policy, the government will also continue to seek opportunities for Air New Zealand (and other New Zealand airlines) to enter overseas markets that offer commercial opportunities.

Why did the review revise effective limits on foreign ownership and control of New Zealand airlines (other than Air New Zealand)?

The new policy will allow New Zealand airlines (other than Air New Zealand) greater access to global equity markets, potentially reducing their cost of capital. The review will still ensure the airlines retain their right to exercise traffic rights negotiated by New Zealand, and that effective safety oversight is maintained.

Air services agreements give one country the right to deny operating authorisation to an airline from another country that does not meet the specified ownership and control criteria.

Since 1998, however, there has been an increased willingness around the world to accept a greater level of foreign ownership in airlines.

The policy states that New Zealand enters into reciprocal open skies agreements, except where it is not in the best interests of the country as a whole. How do we determine what is in New Zealand’s best interests?

Determining what is in New Zealand’s best interests includes looking at the benefits that can come from new air services that link New Zealand with key trade and tourism, and other visitor markets, and from opportunities for New Zealand airlines to offer services overseas.

Impact of the proposals

Will this policy open new markets to New Zealand airlines and travellers?

In implementing the policy, New Zealand will continue to seek to create an environment in which airlines can enter new markets where and when they see a commercial opportunity. Airlines come and go in response to a number of factors including fuel costs and exchange rates. New Zealand faces a particular challenge because of our geographic isolation but removing regulatory barriers in air services agreements maximises the ability of international airlines to respond positively to market changes.

What impact will the policy have on New Zealand aviation exports?

The policy will not directly impact on aviation exports such as flight training and aircraft. It does, however, set out our intention to include, in air services agreements, a framework under which mutual recognition and other agreements, which facilitate the export of aviation products and services, can be put in place.

Will this lead to international services to regional airports?

The new policy will not directly impact on the ability of regional airports to attract new air services. We already have open agreements with many of our closest neighbours (notably Australia) which do not limit routes or capacity. International air services to other destinations from New Zealand’s regional airports are generally constrained by demand or operational factors, rather than air services agreements.

Will the new policy lead to cheaper airfares?

Air services agreements put in place under the new policy will allow airlines to enter the market where they see commercial opportunities. Over time, this is likely to lead to more services and cheaper airfares, as more airlines enter the market.

Where will the focus for future negotiations be?

Priority will be given to negotiations that meet the objective of the policy. This will include expanding opportunities with growing markets in East Asia and South America, such as China and Brazil.

How does the policy relate to the recent agreements with China and Japan?

The approach to the recent negotiations with Japan (in February 2012) and China (April 2012) was guided by the existing policy. The agreements we reached with Japan and China were not ‘open skies’ agreements, but both agreements allow for a substantial increase in capacity available for air services. Further liberalisation with Japan and China will be sought in the context of the new policy.

Other

Why doesn’t the policy cover environmental issues?

Key environmental issues in aviation are being dealt with through the International Civil Aviation Organisation and other multilateral and cross-sectoral fora. This is a more effective way of dealing with such global issues rather than by seeking to adopt a range of approaches in infrequently re-negotiated bilateral air services agreements.

What is the timeframe for implementing any changes?

The policy will be implemented on an ongoing basis.