New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Transport Titbits — Domestic Aviation Recovery in Check</h2>
Domestic aviation has recovered strongly since the depths of Alert Level 4, but still remains down around -40% from pre COVID-19 levels (based on February 2020 capacity) and even more against the prior year (given the exit of Jetstar regional late 2019). &nbsp;Following a school holiday driven boost in July, capacity appears to have softened. We believe a number of issues are stalling the recovery:
<ul>
<li>~20% of domestic demand historically has been driven by international connections and inbound tourists.</li>
<li>Business travel is recovering but lags the recovery in leisure. Business travel accounted for ~40% of Air New Zealand’s (AIR) passengers pre COVID-19.</li>
<li>An outlook of economic uncertainty and risks around a return of community transmission/government restrictions means corporate and personal cost control remains a feature.</li>
<li>There is little stimulus from one-off events (concerts, All Black tests, festivals, conventions etc).</li>
<li>Apathy to travel remains given heightened perceived health risks as evidenced by the increased usage of masks in public places across New Zealand.</li>
</ul>
AIR has been surprised by the level of domestic demand having increased its domestic capacity for August to ~70% (from ~55%) of pre COVID levels as acknowledged in late July. The likely opening of a Cook Islands bubble/air bridge before year end, as outlined by the Prime Minister today, will assist the domestic recovery albeit only marginally as (1) the Cook Islands only represented &nbsp;~3% of AIA’s international seat capacity in 2019, and ~2% of AIR’s international available seat kms (ASKs), and (2) the short haul nature of Rarotonga-New Zealand means greater scope for point-to-point services from multiple New Zealand airports rather than hubbed international connections.
Internationally, the aviation recovery is afoot with global air passenger capacity now down -52% year on year (vs a trough of -87% in April according to IATA), led by China, which is now back to ~84% of its pre COVID-19 capacity. &nbsp;
We expect the domestic aviation recovery to continue on a gradual/non-linear basis.
Transport Titbits Chart of the Week: Daily domestic services into Auckland Airport
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.1&amp;permmsgid=msg-f:1674611316496200529&amp;th=173d6a1eb09af351&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ87CR_kdWpkLOWEuwhX5matgmETBjW_fJhP2tpQq2R9ZbevGEsqqGqk5pDf5rEAz93zlMznb2t_Sqb7oFcRlb9LD4VHxjGPHF-9lU_J1GZXCOyoeAK7toDpESY&amp;disp=emb" width="693" height="453" class="editor-image img-responsive" data-image-whitelisted=""></figure>
Source: Flightaware, Forsyth Barr analysis
Andy Bowley&nbsp; Head of Research
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.2&amp;permmsgid=msg-f:1674611316496200529&amp;th=173d6a1eb09af351&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ_AnBH6gmktCfnAuBeT1KWzfUiprprXSTMokV2bajFF1nfUeayN0o6BW5RJaQcaC6UZ6bNg-jm5szVkjRfj3RR7-hGlEiJyyYeTRQqo6i8-s-aOPUTPpZO2rAQ&amp;disp=emb" class="editor-image img-responsive"></figure>

M: +64 21 338 941 |P: +64 4 495 8246 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Transport Titbits — Domestic Aviation Recovery in Check
Domestic aviation has recovered strongly since the depths of Alert Level 4, but still remains down around -40% from pre COVID-19 levels (based on February 2020 capacity) and even more against the prior year (given the exit of Jetstar regional late 2019). &nbsp;Following a school holiday driven boost in July, capacity appears to have softened. We believe a number of issues are stalling the recovery:

~20% of domestic demand historically has been driven by international connections and inbound tourists.
Business travel is recovering but lags the recovery in leisure. Business travel accounted for ~40% of Air New Zealand’s (AIR) passengers pre COVID-19.
An outlook of economic uncertainty and risks around a return of community transmission/government restrictions means corporate and personal cost control remains a feature.
There is little stimulus from one-off events (concerts, All Black tests, festivals, conventions etc).
Apathy to travel remains given heightened perceived health risks as evidenced by the increased usage of masks in public places across New Zealand.

AIR has been surprised by the level of domestic demand having increased its domestic capacity for August to ~70% (from ~55%) of pre COVID levels as acknowledged in late July. The likely opening of a Cook Islands bubble/air bridge before year end, as outlined by the Prime Minister today, will assist the domestic recovery albeit only marginally as (1) the Cook Islands only represented &nbsp;~3% of AIA’s international seat capacity in 2019, and ~2% of AIR’s international available seat kms (ASKs), and (2) the short haul nature of Rarotonga-New Zealand means greater scope for point-to-point services from multiple New Zealand airports rather than hubbed international connections.
Internationally, the aviation recovery is afoot with global air passenger capacity now down -52% year on year (vs a trough of -87% in April according to IATA), led by China, which is now back to ~84% of its pre COVID-19 capacity. &nbsp;
We expect the domestic aviation recovery to continue on a gradual/non-linear basis.
Transport Titbits Chart of the Week: Daily domestic services into Auckland Airport

Source: Flightaware, Forsyth Barr analysis
Andy Bowley&nbsp; Head of Research


M: +64 21 338 941 |P: +64 4 495 8246 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Transport Titbits — Domestic Aviation Recovery in Check