New Zealand Professional Investment Services Firm

Forsyth Barr

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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 — Summer Capacity Subdued</h2>
Today is Air New Zealand’s (AIR) busiest day of the year, so therefore an apt time to delve deeper in to the airline capacity outlook over the summer peak.&nbsp;
Overall international capacity (to/from New Zealand) is due to grow by a measly +0.4% for the four months from December 2019 to March 2020 according to airline schedule data. However, the capacity growth picture does differ by region. The Americas is flat year on year with the increased frequency to North America offset by a decline in LATAM services to Santiago; the next summer peak will be boosted by the new Newark and Dallas services. Asian capacity is up +5% as a result of Air New Zealand’s (AIR) new Auckland to Seoul route that began in November 2019, as well as increased frequency on existing routes (Malaysian Airlines to Kuala Lumpur, China Eastern to Shanghai, and Air New Zealand to Taipei). China specific capacity is down -3% for the Dec-Mar period and this is due in part to the exit of Tianjin Airlines in March 2019. Closer to home there will be a modest decline in passenger capacity across the Tasman. In contrast, Pacific Island capacity is up almost +5% compared to last year, with Bali services (yes, we group these within Pacific Island’s consistent with AIR’s disclosures) being a key driver.&nbsp;
Total domestic capacity is down -4% for the December-March period with AIR down -1.5%. Notably regional capacity will fall a net -3% as a result of Jetstar’s exit from the market.&nbsp;
A more subdued capacity backdrop will be beneficial to airline yields, particularly given recent economic indicators suggesting underlying demand is likely to improve rather than contract from current levels. However, subdued overall capacity growth to/from New Zealand through the inbound tourism peak doesn’t bode well for a tourism sector that has increased its own capacity in recent years. Looking beyond the summer peak we expect the capacity backdrop to remain constrained through 2020 before picking up again in 2021.&nbsp;
Transport Titbits Chart of the Week: International capacity growth – all airlines&nbsp;
<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:1653407337711764785&amp;th=16f21536a9558531&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ_PIClc79dHbwj4FZ65_0pMvM7Os4W5oTMI3DC_NU4dmPnWveNryQbqHdFUS8HrQStSoItFc5RNXXZo-NnCh7kQo3Phq_aEOCuKCmIQj222k3bDnRcbEaBT7A0&amp;disp=emb" width="480" height="288" class="editor-image img-responsive" data-image-whitelisted=""></figure>
Source: OAG, Forsyth Barr analysis&nbsp;&nbsp;
Andy Bowley&nbsp; Head of Research Forsyth Barr Limited
M: +64 21 338 941 | P: +64 4 495 8246 | TF: 0800 367 227&nbsp; Level 22 , 157 Lambton Quay, Wellington

Transport Titbits — Summer Capacity Subdued
Today is Air New Zealand’s (AIR) busiest day of the year, so therefore an apt time to delve deeper in to the airline capacity outlook over the summer peak.&nbsp;
Overall international capacity (to/from New Zealand) is due to grow by a measly +0.4% for the four months from December 2019 to March 2020 according to airline schedule data. However, the capacity growth picture does differ by region. The Americas is flat year on year with the increased frequency to North America offset by a decline in LATAM services to Santiago; the next summer peak will be boosted by the new Newark and Dallas services. Asian capacity is up +5% as a result of Air New Zealand’s (AIR) new Auckland to Seoul route that began in November 2019, as well as increased frequency on existing routes (Malaysian Airlines to Kuala Lumpur, China Eastern to Shanghai, and Air New Zealand to Taipei). China specific capacity is down -3% for the Dec-Mar period and this is due in part to the exit of Tianjin Airlines in March 2019. Closer to home there will be a modest decline in passenger capacity across the Tasman. In contrast, Pacific Island capacity is up almost +5% compared to last year, with Bali services (yes, we group these within Pacific Island’s consistent with AIR’s disclosures) being a key driver.&nbsp;
Total domestic capacity is down -4% for the December-March period with AIR down -1.5%. Notably regional capacity will fall a net -3% as a result of Jetstar’s exit from the market.&nbsp;
A more subdued capacity backdrop will be beneficial to airline yields, particularly given recent economic indicators suggesting underlying demand is likely to improve rather than contract from current levels. However, subdued overall capacity growth to/from New Zealand through the inbound tourism peak doesn’t bode well for a tourism sector that has increased its own capacity in recent years. Looking beyond the summer peak we expect the capacity backdrop to remain constrained through 2020 before picking up again in 2021.&nbsp;
Transport Titbits Chart of the Week: International capacity growth – all airlines&nbsp;

Source: OAG, Forsyth Barr analysis&nbsp;&nbsp;
Andy Bowley&nbsp; Head of Research Forsyth Barr Limited
M: +64 21 338 941 | P: +64 4 495 8246 | TF: 0800 367 227&nbsp; Level 22 , 157 Lambton Quay, Wellington

Transport Titbits — Summer Capacity Subdued