News Backgrounder
Building on an extraordinary performance record
Air New Zealand, producing record profit after record profit, has been on a major international network expansion drive in the last 18 months. The next step in its strategy is to persuade Australians to abandon major rival, Qantas Airways, and fly Air New Zealand to the Americas via Auckland.
November 1st 2016
Air New Zealand (Air NZ) CEO, Christopher Luxon, has never been shy about his ambitions. “We’re incredibly proud of our achievements in the last five years,” he told Orient Aviation last month. Read More » “We don’t just want to be a good Australasian company. We actually want to become a truly great and world class organization.”
If the carrier’s results are anything to go by, Luxon is well on the way to achieving that goal. “We’ve had 15 years of continuous profitability. In our last four years, we have set straight record results commercially year-on-year. We delivered 70% growth in our profitability with profits of US$628 million over that period,” he said.
 |
“What we have done is impressive, but how we have gone about it is what is really important. We have put profitable growth back at the heart of this company. So our revenues are up over 9%. Our capacity and our network have grown in the order of 12%. Our international long-haul network has expanded by 16%.
“Our Tasman traffic is up over 4% and when you think about GDP growth in Australia and NZ, that’s a fantastic result.”
The carrier’s latest annual results, for the year ended June 30, saw it report a record pre-tax profit of $475 million and a net profit of $332 million. Earnings guidance for the year is that Air NZ is will deliver its second or third best profit result in the airline’s 76-year history, despite the fact that competition and capacity has been flowing into New Zealand from the U.S., the Gulf and China at unprecedented levels.
Competition is not a concern, said Luxon. “We have dealt with Middle Eastern competitors, Chinese competitors, Australian and American competitors and we have done exceptionally well in the last 15 years. We love competing with everyone and anyone,” he said.
The latest newcomer scheduled to arrive in New Zealand is China’s Hainan Airlines flights from Shenzhen to Auckland in January. It does not faze Luxon, who pointed out that his carrier has joint ventures with Air China and Cathay Pacific Airways.
“When you go to Shanghai, there is a big enough catchment. It’s a country in its own right so whether someone is coming at you from Chengdu or Tianjin or elsewhere it doesn’t really impact us,” he said.
There is a bigger picture as far as Luxon is concerned. “There’s a world that has 7.4 billion people in it and it’s going to go to nine or 10 or 11 billion by the end of the century, depending on which forecast you believe,” he said.
“What Australia and New Zealand have to offer as a tourism proposition is immense. We are living in a world that is increasingly densified, increasingly middle class. There is a tidal wave of demand sitting out there and coming our way whether you are sitting in Asia, the Americas or Australasia. And it is coming whether we are ready or not.”
Luxon conceded things may be “a bit more choppy” this year as a result of additional competition. He said that for Air NZ it means there will be a period of adjustment as demand and supply regains equilibrium.
“In the short term, we have had a tremendous amount of competition showing up in New Zealand in a very concentrated period of time. But let’s get a little bit of perspective. I think the competitive thing is a little overplayed. I am very confident in the long, medium and even short term performance of our business,” he said.
At the same time that revenue has been growing at Air NZ, costs are being carefully controlled. “Fuel has helped us a lot, but we have the most modern fuel efficient fleet in this part of the world. We derive a lot of benefits from that, including a tripling of our cash flow and, obviously, an upgrade in our investment grade rating,” Luxon said.
Air NZ operates 56 jets: 29 A320-200s (with 13 A320s and A321neo on order), three B767-300ER, eight B777-200ER, seven B877-300ER and nine B787-9 Dreamliners, with more to arrive at the carrier.
“All of that commercial success is important because it is allowing us to plough these profits straight back into the company. In the last four years we have been upgrading to new modern aircraft in our fleet,” he said.
“We were first to launch the B787 Dreamliner -9. It has been a superb aircraft for us. We did 16% more flying on our long-haul fleet last year, but our fuel consumption was only 12% up and that’s purely speaking to the fuel efficiency of those aircraft. In the next three years we will spend another $2 billion on our fleet.”
Since mid-2015, Air NZ has inaugurated services to Singapore, Beijing, Houston, Buenos Aires, Osaka and Ho Chi Minh City. Now it wants a bigger share of the Australian market.
Already, two of Air NZ’s newer routes are attracting Australian traffic: 40% of travelers on its flights to Buenos Aires and 20% of passengers to Houston are Australian. “The challenge we have is that only four out of ten Australians understand we fly beyond New Zealand to destinations such as Vancouver, San Francisco, Houston, Los Angeles and Buenos Aires,” he said.
On that other matter of his airline’s decision to sell its holding in Virgin Australia earlier this year, Luxon said: “Both companies are incredibly committed to everything that has been quite successful for all of us. We look forward to deepening that in the coming years.
“The reality is that our relationship with VA always has been compartmentalized into three, so us coming out of the shareholding is purely a commercial and investment decision. The alliance has gone from strength to strength. There is real mutual value for both organizations.
“John (VA chief executive John Borghetti) and I are hugely committed to the alliance. And then on the third side, we maintain a lot of Virgin aircraft at our maintenance facilities in New Zealand.”
When Air New Zealand (Air NZ) launches a new marketing campaign you can be sure it will quickly become a talking point and that was definitely the case when the Auckland-based carrier launched a multi-million dollar Australia-wide television advertising campaign last month. Its content had viewers in stitches. Aimed at attracting more Australians to travel with the carrier to North and South America via Auckland, the campaign features a goose called Dave with his voice provided by veteran Australian movie star, Bryan Brown. Essentially, instead of flapping its own wings for days to cross the Pacific, Dave boards an Air New Zealand flight and does the journey in just over a few hours, where he enjoys the benefits of the carrier’s on-board service. Speaking at the campaign’s launch in Sydney, Brown said he accepted the role because no one had ever asked him to play a goose. “What’s the one person that does not need to fly?” Brown said. “A bird. So if a bird’s flying Air New Zealand it’s got to be good.” Air NZ wants Australian passengers to transit through Auckland Airport rather than make a domestic-to-international change at Sydney Airport. “Many of them would be doing a domestic transfer after arriving at an airport like Sydney where it would take them half-an-hour to get across to the international terminal and a lot of mucking around,” said Air NZ CEO, Christopher Luxon. “Whereas with Air New Zealand you can check in internationally, go straight through to Auckland and proceed as a transit customer. There is no worry about customs or border control and you can seamlessly board your long-haul flight from there,” he said. While the campaign is targeted solely at Australia for now, Dave the goose may be adapted for use in other overseas markets such as Japan, China and the U.S., the airline said. |
