Airline underwrites key messages

Tourism accounts for some 75% of the gross domestic product of the Cook Islands
The greatest challenge facing small island nations worldwide is access. Other Pacific countries deal with long haul access through having their own international airlines as they are in a similar situation where access to Northern Hemisphere markets is crucial to the survival of their tourism industries. These national airlines come at a massive cost as can be seen by studying the financial results of our neighbouring countries airlines.
The strategy for the Cook Islands was to invest in a piece of an airline with 2 underwrites to stimulate economic growth and leverage the opportunities presented by our largest industry
As a result of both the underwrites and the significant commitment to the Auckland route, Air New Zealand is one of the Cook Islands most significant economic partners.
Our tourism industry was built on year round visitor flow…..UK/Europe/North America in our summer…..NZ and Australia in our winter. Many Cook Islands businesses would be unsustainable if based solely on short haul seasonal traffic from New Zealand despite it being our largest market.
The World’s airline industry has undergone a massive transformation in the past twenty years with de-regulation and the advent of point to point low cost carriers. The ability to transfer pricing and costs across airline networks has gone. Every route must stand on its own commercial feet.
In 2006 when Air New Zealand made the decision to withdraw from the ‘mid Pacific’ stopovers en route to Los Angeles (Samoa, Cook Islands, Fiji, Tahiti) it was predicted there would be significant business failures in Rarotonga and Aitutaki and at least 800 jobs would be lost. It was at this stage that the option of underwriting a flight direct to the Cooks, was explored.
No other airline was interested in taking on the Rarotonga-Los Angeles route on a commercial basis. That is still the position today. To put this into perspective, Qantas has just withdrawn from the Auckland-Los Angeles route citing lack of profitability.
The Government initiated negotiations that led to an agreement to underwrite the once weekly direct service between Rarotonga and Los Angeles.
Because of the importance of the northern hemisphere markets in terms of seasonality and spend and the success of the flight, that agreement was renewed for a term of three years in December 2010 along with the signing of a further contract covering the development of the Rarotonga-Sydney route.
The terms of these agreements have not changed but unfortunately significantly increased fuel costs and a soft global economy have increased the financial exposure to both parties.
So while the LAX route continues to lose money in an operating sense, it facilitates travel for some 20,000 visitors from the Northern Hemisphere annually. This market generates a nett economic gain to the Cook Islands substantially in excess of the cost of the underwrite. Losing this market would have disastrous consequences for business and reduce Government’s revenue substantially and with that, its ability to fund social programmes including education and health.
The Auckland-Rarotonga route is an ‘open skies’ agreement which means any airline can operate the route however it is presently operated by Air New Zealand and Virgin Australia. The bulk of traffic is low yield leisure travellers. Given current fuel prices, this route is no doubt under profitability pressure also, as well as having to compete with other short haul destinations such as Fiji, Vanuatu, Noumea that are closer to New Zealand and cheaper to operate.
To put things in perspective, tourism is our country’s single dominant industry. To rely on a single source market from New Zealand would leave us economically very vulnerable, and very fragile. Government’s underwriting of these airline routes is a significant investment in the Cook Islands visitor industry that is in turn the lynch pin of the economy.
Australia
Australian outbound tourism is the largest source market in our region and offers the great potential in term of numbers, yield and dispersal to our sister islands. Sydney is also hub to dozens of international flights per day from Asia and Europe. Since the advent of the direct flights in 2010, this market has grown by almost 30%.
The decision to launch the direct service to Sydney is an initiative to diversify access and build additional source markets in Asia and Europe as well as seasonal traffic from New South Wales
By next summer, we should see this strategy realised as our European industry partners utilise the Sydney route option.
Currently, Cook Islands Tourism are rolling out a strategy to ensure that the worst case scenario of a $12.5M underwrite bill does not materialise. This strategy includes a mix of direct to consumer and travel trade driven initiatives aimed at stimulating travel from Sydney to Rarotonga on the direct route amd continue to build the awareness of the Cook Islands as a destination of choice for Australians
The Sister Islands
While the entire economy relies on the access provided by the underwritten routes, it is nowhere more obvious than in the sister islands. The northern hemisphere and Australian markets targeted by these flights and the support marketing, deliver a higher spending visitor who is unfazed by having to leave Rarotonga to continue their Cook Islands experience thereby extending the economic benefits of tourism beyond Rarotonga and into areas of greatest economic need.
Forward plans
Cook Islands Tourism along with other Government officials meet regularly with not only Air New Zealand but also the other international airlines in our region, constantly reviewing ways in which the Cook Islands can maintain access to long haul markets in the most cost effective manner. We are certain that the current contractual arrangements with Air New Zealand are the best solution available for the present situation.
Naturally, when the time is right, we shall explore all options for future agreements to ensure the greatest economic opportunities for the least cost

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