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.

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“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.

A 737 plane at a gate at Sydney's international airport.

Air Vanuatu’s Boeing 737 at Sydney airport. The plane was grounded for long periods due to maintenance problems.(ABC News: Doug Dingwall)

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.”

Airport workers load up an Air Vanuatu plane.

A report found Air Vanuatu faced large debts and was unable to afford parts for maintenance. (ABC News: Doug Dingwall)

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.

A Fiji Airways plane in flight, with a grey cloudy sky in the background.

Fiji Airways has achieved success in the Pacific after the pandemic.(AFP: Pascal Pavani)

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.

A woman walks towards an airport entry with a sign saying 'international'.

Despite Air Vanuatu’s grounding, other airlines are flying into Port Vila International Airport.(ABC News: Doug Dingwall)

Virgin Samoa was 49 per cent owned by Virgin Australia but closed after passenger demand didn’t create the revenue expected.

Dr Tolkach said New Caledonia’s airline, Air Calin, might be a better example for a future version of Air Vanuatu to follow.

The airline has purchased new, more fuel-efficient aircraft, which has helped it build a reputation for reliability.

“They stick to a few routes that are very important for them with their four aircraft,” Dr Tolkach said.

“And then they rely on partnerships to provide connections elsewhere. And that model works.”

A Pacific dream

A long-lived dream in the region is to operate a pan-Pacific airline — something that could help build scale and connect the region.

UNSW aviation expert Andrew Charlton said to help create this, the region’s small airlines could create code share or partnership arrangements.

This would mean coordinating their schedules more.

“They’re going to have to optimise services to low-volume routes,” Mr Charlton said.

“One of the things they can do is help each other by providing replacement flights or maintenance or replacement aircraft.

“And also they can look at how they handle their costs at airports and maybe they start reciprocating — you know, ‘We’ll handle you here and you handle us there.'”

But the potential solution of a single, regional airline raises its own issues.

It would have to balance the different interests of Pacific Island nations across the region.

“Who maintains operational control over managing the fleet, the routes they do, all the strategies for pricing, the customer service strategies?” Mr Poduval said.

“And what will be their branding?”

Pacific Island nations would have to relinquish the national identity attached to their carriers.

Mr Charlton said another option for Vanuatu — which is still serviced by other international airlines — was to go without a national carrier providing international services. Its government could instead invest money in developing tourism infrastructure.

“If the tourism infrastructure is sufficiently attractive, that will help get over the fact you don’t have a carrier,” he said.

But the idea of giving up a national carrier may be unattractive to Pacific Island countries, which are separated by a vast ocean and reliant on imports.

National carriers play a vital role inside their archipelagos too, carrying people and freight between centres and outer islands.

After Air Vanuatu’s liquidator grounded flights to allow safety checks, it removed the main corridor of movement between Port Vila and other islands.

A white sand beach with turquoise waters.

Many tourists fly domestically from Port Vila to Espiritu Santo island.(ABC News: Doug Dingwall)

Gaëlle Roussel, the owner of a resort on Vanuatu’s Espiritu Santo island, is one of the people affected.

But she said operators at the popular tourist destination were still seeing some glimmers of hope.

“As we all work hard to maintain the beauty of our properties and the island, we’ve also received a lot of messages of people hoping to visit Santo and Vanuatu once the situation with Air Vanuatu hopefully settles,” she said.

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