Air New Zealand is heading to Tasmania later this month. The Kiwi airline is resuming flights to the Apple Island's capital city of Hobart after a two-decade absence. The new service between Auckland and Hobart has garnered some attention as it is also the first time in over two decades Hobart has hosted a regular international flight.

Is the market big enough to sustain Air New Zealand's new Hobart service?

But skeptics are already pointing to the relatively small (indirect) passenger traffic between the two cities. Before the global travel downturn, about 25,000 New Zealanders headed to Tasmania every year. Approximately 20,000 Tasmanians returned the favor. With such a small market, why would Air New Zealand bother flying to Hobart?

Initially, Air New Zealand will send one of its 168 passenger Airbus A320s to Hobart twice-weekly. That is 336 seats in either direction every week, or a total of 34,944 seats over one year. Theoretically, Air New Zealand could sell every seat and still have thousands of potential passengers to spare.

Of course, that assumes most passengers want to fly direct. But not all do. Particularly with New Zealanders heading over to Australia, their trips typically feature multi-city itineraries. It also assumes everyone wants to depart from or head to Auckland if their travels involve a Tasmanian leg. Not all passengers do. The size of the market isn’t as big as the raw data suggests.

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In the short term, it is about accessing one of the few available unserved markets

In the short term, this new route is about Air New Zealand moving into one of the few available markets. The airline has continued to operate scaled-back international services to Australia and around the Pacific rim throughout the travel downturn.

But those flights are largely propped up by government subsidies and cargo. They fly very few passengers. In February 2021, Air New Zealand flew 624,000 passengers. Only around 20,000 of those passengers were on an Air New Zealand international service.

With the trans-Tasman bubble due to kick off on Monday, the number of passengers boarding an Air New Zealand international flight will soon soar. Hobart remained the largest city in Australia Air New Zealand was not serving. With few other expansion options available, it is about getting in there, making do with what’s available, and hopefully growing the market.

In the longer term, it’s about developing a route with a lot of unrealized potential

But Air New Zealand will also be looking at the longer term. In addition to being one of the world’s few jumping-off points for Antarctic trips, Tasmania’s potential as a tourist destination is relatively undeveloped. Lack of direct international flights is one of the primary reasons behind the unrealized potential.

For traffic from North Asia, North and South America, Air New Zealand’s Auckland hub is a strategically placed pitstop on the way to Tasmania. There's considerable potential there.

Only half a million people live in Tasmania, but Air New Zealand may also be positioning itself to pick up their business beyond this year. If Tasmanians are heading to the America’s, Japan, China, Korea, Air New Zealand will be able to take them there via Auckland.

This year, nearly all of the business on this route will be leisure travelers and the visiting friends and relatives market taking advantage of the trans-Tasman bubble. But beyond that, it is a whole different matter. Auckland-Hobart is an undeveloped route. But with a bit of clever marketing could prove a surprise winner for Air New Zealand.

What’s your take on Air New Zealand’s decision to head to Hobart? Post a comment and let us know.