Air Chathams says the Tongan government is bringing in a Chinese-run service, with the Chinese government providing a plane and other services free of charge.
The airline's general manager in Tonga, Noel Gillespie, says they can't compete against a government-subsidised service in such a small market, so they are reluctantly ending their flights in March.
Presenter: Bruce Hill
Speaker: Air Chathams general manager in Tonga, Noel Gillespie
GILLESPIE: About halfway through last year, the Tongan Government announced that China would be gifting them an aircraft and with that, there would be training facilities and engineering facilities and setting up their own airline. This means, of course, that there will be an airline here that wouldn't have the normal commercial expenses that we have with gifted aircraft etc. Therefore we decided that we couldn't compete in that environment and decided that it was the best to withdraw.
HILL: So when will Air Chathams be flying for the last time in Tonga?
GILLESPIE: March 2nd will be the final flights. We have offered the government a solution for the interim, between then and when they're able to get their own airline operating by offering them aircraft and services on a lease or chartered basis, but we're yet to hear back from them on that.
HILL: Have you spoken to the government about this decision for them to bring in this Chinese aircraft and compete with you?
GILLESPIE: Yes, we've had numerous conversations, but it was clear that they didn't want us involved, that it was going to be a separate entity and as I said, it certainly wasn't going to be a level playing field, and so we decided best we withdraw and let them get on with it.
HILL: You sure you couldn't compete? You've got a pretty good reputation and a lot of brand loyalty there in Tonga. Are you sure that everyone would stampede across to the Chinese airline?
GILLESPIE: The market is so small that even a 10% reduction in the traffic that we have would jeopardise the operation and we have a New Zealand operation as well Air Chathams, between New Zealand and Chatham Islands who rely on Craig for the air services, it's extremely important to them. And we're not prepared to jeopardise the whole business under these circumstances.
HILL: My understanding is that Air Chathams has actually done a pretty reasonable job of providing internal air transport in Tonga?
GILLESPIE: I believe we've done an excellent job here, considering the isolation and the difficulties that there are operating in the Pacific and I think the numerous messages and phone calls and thoughts we've had since the announcement certainly supports that view.
HILL: Tonga's had a very chequered history when it comes to airlines. Everyone remembered the collapse of Royal Tongan Airlines and then the fight between Pe'au Vava'u and Fly New which led to Fly New collapsing, then Pe'au Vava'u collapsed and you were brought in. Tonga doesn't seem to have been able to get its airline policy right for some time?
GILLESPIE: Yes, I think it's probably just commercial reality that people who run these airlines, manage these airlines, just have to get their head around the fact that revenue has to equal expenditure at the very least to stay and business and they haven't been able to achieve that.
HILL: How many airlines has Tonga had now?
GILLESPIE: I understand we're the eleventh.
HILL: That's quite a lot. What's the average life expectancy of an airline in Tonga?
GILLESPIE: Well in the history, and this is hearsay, I understand it's 3.5 years average.
HILL: What effect do you think this would have commercially and on say the tourist industry?
GILLESPIE: Well, we're trying to minimise that by offering the government an interim leased or chartered service until they get their own airline up and running. But over the four-and-a-half years that we've been here, I'd have to say that the tourism industry outside of Tonga was very sceptical about domestic travel in Tonga and was reluctant to send people here, because of people getting stranded and all that type of thing, and we have gained their confidence and have numerous commercial agreements with inbound tour operators now and it would be a shame to see that all that disintegrate, so this is what we're trying to encourage the government to put in place, a good interim solution between now and when they get their own airline running.
HILL: Do you think that this new Chinese-backed airline with its one plane will be able to replace Air Chathams. Will it be able to service, not just Tongatapu Haapi and Vava'u, but also the Niuas and Eua as well?
GILLESPIE: No, they won't be able to service everything with one airline, because the runways won't allow that.