This information relates to the International Air Freight Capacity Scheme (IAFC).
Extension of the IAFC scheme
Existing IAFC agreements with airlines expire at the end of November. The flow-on effects of the COVID-19 global pandemic continue to impact international air movements and airfreight capacity.
The IAFC scheme extension ensures a predictable and regular schedule of air services to safeguard New Zealand’s international connectivity. Extending the scheme through to the end of March 2021 helps to maintain critical airfreight capacity.
How the added capacity compares with current and pre-COVID-19 levels
Decisions have not yet been made about the number of flights which will be supported under the IAFC from 1 December, but inevitably the total number of flights will be less than pre-COVID, when most flights were carrying passengers.
There are currently around 124 flights running per week, with 70 of those supported by the IAFC scheme. However, prior to the COVID-19 impact, New Zealand would have had more than 600 flights per week, so there is a long way for international aviation to recover.
How we chose the preferred destinations
We worked closely with the Ministry of Business, Innovation and Employment, the Ministry for Primary Industries, New Zealand Trade and Enterprise, and Customs to understand the type, volume and movement of exports and imports, and impacts being seen by exporters.
We engaged with freight forwarders, the Air Cargo Council, Air New Zealand, Board of Airline Representatives of New Zealand, and Auckland and Christchurch airports to see where freight was going, by airport, to which destination, and by which carrier. Because we approve air services, we monitor air cargo operators flying to New Zealand, and continue to track cargo movement of airlines through slot information — the booking system for international aircraft.
How IAFC funding works
Each agreement is tailored to the carrier’s proposal, route and freight capacity. The amount paid to successful applicants depends on a formula set out in the agreement. The level of support usually depends on how full the plane is, with funding reduced as the aircraft reaches freight capacity. Within the terms of the funding agreement, the Government will not fund flights that operate below a specified threshold.
The total level of funding is currently around $6m per week, but it does fluctuate.
Fully subsidising flights is not economically viable or desirable, and the market will need to adjust to changes in prices. The scheme uses a robust market-led approach, requires importers and exporters to pay for their freight on a commercial basis, and aims to help the sector recover as quickly as possible.
The Government is closely monitoring the international airfreight market and will respond based on how the COVID-19 crisis evolves over time. As the market recovers, it will reassess the need for ongoing funding.
Why airfreight rates have increased
Market rates for airfreight have increased and will stay above pre-COVID-19 levels in the medium term. Before COVID-19, paying passengers essentially subsidised freight and a freight-only operation now needs to carry most of the costs, at least until passengers return, or the market adapts in other ways.
Why the scheme includes airlines other than Air New Zealand
Air New Zealand is a big part of the scheme, however, it doesn’t fly everywhere and the use of passenger aircraft for freight presents some limitations. The other providers give us more destinations, flexibility and capacity, and offers choice and some competition for exporters and importers.
How the scheme ensures priority freight is delivered
The scheme is geared toward restoring airfreight capacity. The more freight that is moved, the more market confidence will be restored driving both increased capacity and increasingly competitive freight rates. Air operators are also giving a high priority to freight such as personal protective equipment and pharmaceuticals.
Repatriation of New Zealanders overseas
Some providers are using passenger aircraft and will work with the Government on repatriation opportunities that occur along the freight routes.
How we ensure accountability and transparency
Providers are required to regularly report on their operations, prices and goods carried. We monitor this.
We have a monitoring programme that focuses on the positive and potential negative effects of the scheme on the airfreight market, and we will adjust the scheme accordingly. Our intention is to exit the scheme once the international airfreight market stabilises according to agreed criteria.