Air NZ subsidy blowout creates $2.5million budget deficit

• The Budget for 2011-12 is estimated to have an operating deficit of $2.5 million.
• The need to go into deficit is predominantly the result of the increase in underwriting of the Sydney and Los Angeles routes.
• At the time of the Budget we put aside $8 million for the purpose of underwriting both routes in 2011-12 and 2012-13. We now estimate these to have increased to $12.5 million in 2011-12 and $13.6 million in 2013-14.
• These figures have been confirmed by the Senior Executive of Air New Zealand on 2 February 2012 when the Prime Minister and I went to Auckland to discuss several issues with Air New Zealand, of which this was one.
• Since April 2010 the cost of aviation fuel has risen by around 35 per cent in US dollar terms. It is an external cost we are unable to control and to this end the Government cannot really contain costs. The outlook for aviation fuel is unlikely to get any better, and could possibly deteriorate further.
• According to IATA the increase in aviation fuel prices have globally cost the airline industry around $32 billion this year.
• It is interesting to note that the increase in fuel costs is being attributed for the collapse of Air Australia yesterday.
• We will not act in haste with regard to the current arrangements, an irresponsible approach would be to panic and cease one of the routes in the absence of any strategy.
• Practically we must provide Air New Zealand with three months notice, this would take us through to mid May just prior to the high season, and there would probably be little incentive for Air New Zealand to ensure the custom on the flight is maximised.
• The Government will review its’ tourism strategy to ensure we maximise our investment so that growth is sustained in the tourism sector whilst the Budget is bought back to surplus in 2012-13.

Headlines : Times 290 02 March 2009
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