Tuesday, August 13, 2024

Air Vanuatu's collapse raises questions about future of Pacific airlines

By Doug Dingwall
Posted Tue 21 May 2024 at 5:40am
Tuesday 21 May 2024 at 5:40am, 
updated Tue 21 May 2024 at 8:27am

For Vanuatu resort owner Joel Slattery, the collapse of the nation's airline this month seemed inevitable.

But that hasn't made its demise, coming after a series of other crises in the nation, any easier for the tourism industry.

"It's affected a lot of people and just after we've all come through COVID and cyclones," Mr Slattery said.

"As if we don't have enough natural disasters that occurred, we don't need this mess thrown in on the top of all that," he said.

For years, state-owned Air Vanuatu was plagued with issues including flight delays and cancellations.

A report by Air Vanuatu's liquidator, Ernst & Young, last week found the airline had been in financial distress, dealing with large debts and unable to pay for spare parts needed to keep its sole Boeing 737 in the air.

Mr Slattery, who operates The Moso resort on an island near the capital Port Vila, said the airline's troubles had already taken a toll on Vanuatu's tourism.

"It's having a huge effect," he said in the days after its collapse.

"The number of people I've spoken to who have crossed Vanuatu off as a destination just because of all the bad press that they've had for 18 months, longer, two years almost [is huge]."

Air Vanuatu's liquidation left tourists and labour mobility workers stranded, and raised questions about the future of aviation in the region.

As Vanuatu waits to hear what liquidators recommend for the future of its airline, aviation industry experts say its collapse bears lessons for the region.

They also believe the success of other airlines — such as Fiji Airways, which has just announced record profits — shows a better path is available to Pacific Island airlines.


Teetering on the brink

Ernst & Young's report to Air Vanuatu's creditors, released last week, found a series of problems that weighed on the airline before it went into liquidation.

It had high costs for a company of its size, large debts, and 441 staff across Vanuatu, Australia and New Zealand as well as contractors in Fiji and New Caledonia.

"This is a high number of staff for an operation of the company's size and nature," the report said.

Another problem was that Air Vanuatu could not meet pay for parts critical to its fleet, which meant its aircraft, including its Boeing 737, were grounded for long periods.

Justin Wastnage, an aviation expert at the Griffith Institute for Tourism, said this appeared to seal Air Vanuatu's collapse.

"This problem has been brought about by the fact that its only [international] aircraft has been grounded," he said.

The airline's Boeing 737, with 170 seats, may have been too large for its routes, given tourism demand had not fully recovered after the pandemic.

"It was flying into Brisbane, Sydney and Auckland as well as into Noumea," Mr Wastnage said.

"So it was flying around the place and trying to feed its hub in Port Vila."

Airlines in the Pacific have a hard time remaining profitable at the best of times, even without a pandemic-related tourism downturn.

The region has small populations, vast distances to cover, and high costs for fuel and maintenance.

The aircraft used on domestic routes were also too small to service many of the longer routes between Pacific nations, Denis Tolkach, an associate professor of tourism at James Cook University, said.

"Their range is about 1,500 kilometres," he said.

"To go from Fiji to the Cook Islands is over 2,000 kilometres.

"The islands are dispersed. Even flying from one side of Kiribati to another, it's a long distance. So it is expensive. It puts expenses on the fuel.

"And here the aviation [industry] is open to external vulnerabilities, like changes in fuel prices."

He said another vulnerability was access to spare parts — a factor in Air Vanuatu's demise.

"Some of the airlines that have folded in previous years, the final nail in the coffin was that there was a maintenance issue and they couldn't fix the aircraft," he said.

Fiji Airways' story offers solutions

More than 1,000 kilometres away from Port Vila, Fiji is telling a different story about its national carrier.

Earlier this month, Fiji Airways announced a profit of $FJD131.81 million ($88 million) for 2023 — the highest in its history.

Chief executive Andre Viljoen said the airline was the first in the region to resume flights after COVID-19 border closures, returning to the skies in December 2021 and capitalising on pent-up demand for travel from Australia, the United States and New Zealand.

"Today, we are seeing the benefits of all these actions," he said.

But others see additional reasons for the airline's success.

Mr Wastnage said Fiji's tourism industry was more developed than Vanuatu's.

"[It] means that you can get a lot of people in there, staying at a lot of hotels," he said.

Ashok Poduval, the president of the Aviation Industry Association New Zealand and chief executive at Massey University's School of Aviation,  said one key to the airline's success was it had modernised its fleet of aircraft.

"They have a very modern fleet … they've enhanced passenger comfort, they've also established that they're safe and reliable," he said.

"By and large, if you look at their on-time performance, it's very good."

Fiji Airways had also packaged flights with local tourism experiences and established partnerships with other airlines, he said.

"These are some of the things that other airlines could model themselves on," Mr Poduval said.

"It's perhaps easier said than done because initially it does mean investment and it does mean funds and that's not easy to provide."

Fiji Airways is also 46 per cent owned by Qantas.

This model could be an option for Air Vanuatu if a foreign airline was interested in investing in a reborn version of the national carrier.

But in some cases the model has not led to success.


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