Grant Bradley: What Mike Pero’s Pasifika Air faces to get off the ground

OPINION:

In many ways, Mike Pero has got his timing just right.

The owner of the “emerging” Pasifika Air has broken cover and given some details of his operation. The airline will use leased Virgin Australia aircraft at a time when market lease rates have crumbled. Around the middle of the year they were down by 38 per cent on January.

Pero can also tap into a highly skilled and motivated workforce for his airline, which will initially point its planes at the Cook Islands, which could be part of a quarantine-free travel arrangement from late March.

The majority of staff will be from Virgin Australia, which laid off between 550 and 600 cabin crew and pilots in April, with many of them based in Christchurch, from where Pero will launch operations.

He can avoid “legacy costs” – the longstanding employment arrangements faced by established airlines, with pay and conditions negotiated over years.

Although fuel prices are forecast to increase slightly next year, they come off a low base. The price of jet fuel is down by more than 30 per cent on a year ago, at US$55 ($77) a barrel.

And with the prospect of a transtasman bubble starting at the same time, the big competitors – Virgin Australia, Jetstar andAir New Zealand – may be focused on that denser route with its more reliable revenue, rather than a holiday destination in the Pacific.

Pero is the main backer of Pasifika, although he says there is the potential for other investors. If banks want to lend, money has never been cheaper.

Flights will be three times a week from Christchurch and Wellington airports. Starved of international traffic, from which they make their highest yields, the airports would be keen to accommodate a newcomer. Most importantly, Pero avoids going head-to-head with Air New Zealand, which flies out of Auckland to the Cooks.

He’s hoping to get airborne by the middle of the year, in time for the peak winter travel season and, Covid willing, a few months after a quarantine-free travel bubble has been established.

Pero is one of the most recognisable faces in New Zealand business and got his timing right in launching the idea of the airline when he did, well before it has approval to fly. He can portray Pasifika Air as a challenger brand, the little scrapper taking on the big airlines.

He’s certainly got tailwinds on the cost side, neatly summarising it like this: “We’ve got aircraft parked up, desperate lease companies and banks trying to get their money back, fuel is good, crew is good and Kiwis are ready to go away for their winter holidays.”

With dual residency in New Zealand and the Cook Islands, Pero knows the market well – he’s travelled there frequently during the past 40 years.

THE HEADWINDS

Pero has been a commercial pilot and knows how tough the airline business is. His first job as a commercial pilot was with Pacifica Air, flying between Christchurch and Wanaka.

That airline suspended services in 1989, hit by competition from a bigger rival and high charges.

Pero also flew for Mt Cook Airline, and was on the list for an interview at Air New Zealand, but reportedly missed out when the company hit turbulence and laid off staff.

He was also involved in and lost a “significant amount of money” with Origin Pacific Airways, which ceased flying in 2006.

With understatement, he says: “It’s not easy starting an international airline.”

He’s also up against Air New Zealand, which has a history of not surrendering routes without a fight. Why should it?

With plenty of aircraft capacity, the airline could swing a Dreamliner onto the Rarotonga route. No matter what Pero does to the interior of the narrow-body Virgin planes (some of which are 17 years old), the bigger twin-aisle 787 is usually going to be more attractive.

Air New Zealand has flown from Christchurch to Rarotonga before and could do so again.Likewise, the airline could fly out of Wellington.

It also has more than three million Airpoints members and it is pulling out the stops to keep them more loyal than ever. While the airline suffered a reputational blow this year over refunds and credits, for most customers loyalty is all about the loyalty scheme.

But the thing that makes Air new Zealand most formidable is hundreds of millions of dollars in travel credits. Those people who are owed flights must take them with the airline.

Those with big credit balances may be more willing to burn them up quickly just in case borders close again, and could be quite willing to fly to Auckland if necessary to catch a flight to Rarotonga without too much concern about the cost. They’ve spent the money already.

There are also significant regulatory hurdles for Pasifika to jump.

The Civil Aviation Authority says it has met Pero and his team and talked through the AOC (Air Operators Certificate) certification process in general terms.

“When they are ready to make an application for an AOC it will be assessed in accordance with CAA policy and procedures and, upon successful completion of that process, an AOC can be issued,” said a spokesman.

Aviation commentator Irene King says the concept of Pasifika Air sounds great but starting up an airline in these most uncertain times is not for the fainthearted.

New Zealand doesn’t have a great track record in being able to sustain airlines – even Air New Zealand has had, and is having, its troubles, she says.

“I’d say the odds are not great but Mike’s a serial entrepreneur and maybe the new world order favours serial entrepreneurs as opposed to the more traditional airline model.”

Pero’s got to hope that a wave of public support, a bit of luck and big competitors being distracted by flying to Australia will mean his Pacific Bubble airline really will fly.

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