This information relates to the International Air Freight Capacity Scheme (IAFC).
Extension of the IAFC scheme
Existing IAFC agreements with airlines expired 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 scheme works
Under the terms of the IAFC scheme, airlines and air cargo carriers have been invited to submit proposals to provide air services on key routes according to agreed criteria, submissions for Phase 2 have now closed.
For appointed carriers, funding is provided to guarantee air services on key routes. Airlines then offer that capacity directly to freight customers on commercial terms.
Airlines involved in the scheme
For Phase 2 of the IAFC scheme, proposals have been received from airlines with the capability to operate air services to and from New Zealand and have been reviewed against a specific criteria by the evaluation panel. We are now in the process of signing and finalising contracts with the airlines.
The table below sets out the routes and frequencies for arilines with agreed contracts. Air New Zealand, Cathay Pacific, China Airlines, China Southern, Qantas and Malaysia Airlines have already signed and are successfully operating under Phase 2 of the scheme. Negotiations with other airlines are still in progress and we will update the website as further contracts are agreed. Further adjustments may also be made to the schedule to reflect demand.
Proposed Portfolio for IAFC Phase 2 agreed upon by the Evaluation Panel
Airline
|
Route
|
Frequency accepted by panel
|
Air New Zealand
|
AKL-LAX-AKL
|
7 to 11
|
AKL-SFO-AKL
|
4
|
AKL-HKG-AKL
|
2 to 3
|
AKL-PVG (Shanghai)-AKL
|
2 to 4
|
AKL-NRT (Tokyo)-AKL
|
4 to 5
|
AKL-ICN (Seoul)-AKL
|
1
|
AKL-SYD-AKL
|
7
|
AKL-MEL-AKL
|
7
|
AKL-BNE-AKL
|
4
|
AKL-PER-AKL
|
0 to 2
|
AKL-Pacific-AKL
|
5
|
AKL-CHC-LAX-AKL
|
3 to 4
|
AKL-CHC-CAN (Guangzhou)-AKL
|
2 to 3
|
AKL-CHC-HKG-AKL
|
1
|
AKL-CHC-PVG (Shanghai)-AKL
|
3
|
AKL-CHC-MEL
|
2
|
Cathay Pacific
|
AKL-HKG-AKL
|
3 to 4
|
China Airlines
|
AKL-TPE (Taipei)-AKL
|
4
|
CHC-TPE (Taipei)-CHC
|
3
|
China Southern
|
AKL-CAN-AKL
|
1
|
Malaysia Airlines
|
AKL-KUL-AKL
|
2
|
Qantas
|
AKL-CHC-SYD
|
4
|
Scheme criteria and routes
Criteria
The key assessment criteria apply for Phase 2 IAFC (from December 2020 to March 2021).
The primary and secondary objectives of the scheme form the basis for the key assessment criteria, namely:
Primary objectives: ensuring imports that are important for health, business operations, and other critical tasks continue to be brought to New Zealand, and maintaining air connectivity with key trading partners ensuring our exports that travel by air still make it to those markets.
Secondary objectives: to maintain air connectivity for passengers and future tourism capacity, international relations, and the competitiveness and sustainability of the aviation sector.
We have to be satisfied that, without Government support, the airfreight capacity would not otherwise be provided.
Deciding routes
Responses to the Request for Proposals were required to provide evidence of need and demonstrate there was demand for the route proposed. We are leading the IAFC scheme, and work closely with MBIE, MPI, NZTE, MFAT and Customs to understand the demand on different routes. These Government agencies are in regular dialogue with the private sector to better understand their needs. The scheme is flexible enough to vary the available capacity on different routes to respond to changing demand.
IAFC funding
Each agreement is different, and is tailored to the carrier’s proposal, route and freight capacity. Within the terms of the funding agreements, flights that break-even on their own are not eligible for support.
The total level of funding is currently around $10m per week, but it does fluctuate depending on seasonal demand.
How the added capacity compares with current and pre-COVID-19 levels
The final selection of routes and the number of flights which will be supported under Phase 2 of the IAFC depends on the successful conclusion of contract negotiations with the airlines. Inevitably, the total number of flights will be less than pre-COVID, when most flights were carrying passengers.
Since it was established in April, the International Airfreight Capacity scheme has enabled over 3,700 flights in and out of New Zealand carrying 70,000 tonnes of cargo.
Returning to pre-COVID airfreight rates
The scheme does not return us to pre-COVID airfreight rates. Market rates for airfreight have increased and are likely to stay above pre-COVID rates in the medium term. This is because before the global pandemic, passengers provided the core part of the revenue stream for most air services to New Zealand.
The Government is stepping in temporarily to enable some air services. 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.
Why the Government doesn’t just fund Air New Zealand despite spare capacity
Our national carrier doesn’t fly to and from all destinations, and the use of passenger aircraft for freight presents some limitations as well as some advantages. The other providers give us more destinations, flexibility and capacity, and provides for choice and some competition for customers.
Target number of flights
There isn’t a target number of flights. We are carefully monitoring the overall airfreight market – this scheme is only part of a broader air freight market. Depending on market conditions, we are able to ramp up, wind down or adapt the scheme, this is particularly important heading into the peak season. We do not intend to supply all of the capacity demanded by the market. The more freight that is moved, the more market confidence will be restored, which will drive both increased capacity and increasingly competitive freight rates.
Repatriation of New Zealanders overseas
Some of the providers are using passenger aircraft and will work with Government on repatriation opportunities that occur along the freight routes.
How long does the scheme run
The scheme has been extended to the end of March 2021. Officials have been tasked with reviewing New Zealand’s critical air transport requirements for the coming year to determine what, if any, Government response might be required going forward.
Monitoring the effectiveness of flights and the IAFC scheme
The appointed airlines/carriers are required to regularly report on their operations and will be monitored by the Ministry of Transport.
We have a monitoring programme which focuses on the positive (and potential negative) effects of the scheme on the airfreight market, and we are able to adjust the scheme accordingly. Our intention is to exit the scheme once the international airfreight market stabilises.
New Zealand’s international trade obligations and our policy to oppose subsidies
The COVID-19 pandemic is an extra-ordinary set of circumstances. As a geographically isolated island nation, New Zealand has been severely impacted by the sharp drop in air connectivity.
The scheme is a temporary, time-bound measure to maintain air services that are essential for New Zealand’s connectivity, and aims to help the sector recover as quickly as possible.
A number of other governments are, like New Zealand, stepping in temporarily to help maintain some air services.