Air New Zealand poised for growth

Courtesy Air New Zealand

Courtesy Air New Zealand

Air New Zealand (ANZ) is probably best known for its innovative approach in its in-flight safety video presentation. Drawing inspiration from the Men In Black to Hobbits of the Middle Kingdom, what used to be or is supposed to be a staid, no-nonsense delivery of critical information that is often ignored by many travellers, particularly repeat fliers, the presentation has become entertainment. Though not without controversy, the videos show how ANZ is not only innovative but also bold enough to break tradition. While the initiative cannot be said to be a marketing strategy to attract more customers, one is tempted to ask if ANZ is in like manner finally emerging, albeit slowly, from a lacklustre past and turning heads across the industry.

The kiwi airline has just reported an impressive full-year performance. Operating revenue as at end-June 2015 was NZ$4.92 billion (US$3.01 billion), increasing by 6% over last year. But annualised earnings before taxation rose by 32% to NZ$496 million, and the statutory net profit after taxation was NZ$327 million, up 24%. The results were released right after Qantas’ announcement of a dramatic turnaround and were not surprisingly overshadowed by the hype drummed up by the flying kangaroo’s performance and no less the outspoken personality of its chief executive Alan Joyce (See Qantas is Asia Pacific’s New Star Performer, Aug 27, 2015).

In their part of the world, ANZ and Qantas are major rivals. Indeed, considering that ANZ’s short-haul load makes up 88% of the 14.3 million passengers carried for the full year, the kiwi airline is more a regional than international airline. Australia was its biggest membership base for ANZ loyalty program Airpoints, with growth in that market exceeding 20% during the year. ANZ chief executive officer Christopher Luxon said: “This doesn’t surprise us as more Australian than ever are embracing the Air New Zealand product and service offering whether it be on the Tasman, to the Pacific Islands, North America or South America.”

Obviously Australia is an important market which is critical to ANZ’s growth as an international airline, perhaps an ironic corollary to how Qantas probably sees New Zealand as a necessary appendage by offering a one-dollar fare for onward travel through Australian gateways. Both airlines have enlarged their interest bases in each other’s land – Qantas through its budget subsidiary Jetstar Airways and ANZ its investment in Virgin Australia. And both airlines, situated at the far end of the kangaroo (and beyond) route, face competition beyond their shores from a slew of airlines such as Singapore Airlines (SIA), Cathay Pacific and Middle East carriers.

Mr Luxon said: “We remain focused on the Pacific Rim as our growth strategy and will continue to provide the best connections, product and service at competitive prices, to maintain and grow our market share in these regions. Next year will see further capacity growth in international markets as we look forward to new routes starting in December 2015 to Houston and Buenos Aires. And while we are gearing up to launch these exiting new routes we have a team assessing potential new opportunities in Australia, Asia and the Americas.”

Can ANZ overcome an apparent geographical disadvantage and turn it into a strategic marketing benefit, and identify new windows of opportunities?

Mr Luxon has identified the Pacific Rim as its focus. So, fly west. The Americas are much closer and offer room for growth. Qantas too in recent years has been ramping up its connections westward, penetrating deeper into the US. It operates the world’s longest non-stop flight, between Sydney and Dallas (the record will go to Emirates when it introduces a service between Dubai and Panama City in February 2016). The challenge remains whether ANZ has enough hinterland traffic to sustain that initiative, and whether this will hinge on how successfully it can challenge Qantas on market share for the region. To turn a geographical advantage into a benefit demands a lot of the innovative spirit to make it work. ANZ is already flying onward from Los Angeles to London with fifth freedom rights.

Meantime Qantas has not only strengthened its alliances with American Airlines but also entered into partnerships with airlines in other regions, especially China having identified Asia as a potential area of growth in its restructuring plans. While still maintaining a hub for Asian connections in Singapore (after moving the hub on the kangaroo route from Singapore to Dubai in partnership with Emirates Airlines), it has been active in mounting direct flights between Australian and Chinese destinations. This, of course, makes sense when China has become Australia’s biggest inbound tourism market. The Qantas/China eastern connection now commands 87% of the market share on the Sydney-Pudong (Shanghai) sector. Qantas would have commanded a strong presence in Hong Kong in a tie-up with China Southern Airlines had the Hong Kong administration not rejected the Jetstar Hong Kong’s application.

Qantas offers a ready lesson since Mr Luxon had expressed ANZ’s interest to grow in Asia although, to be noted, Virgin Australia which is 26% owned by ANZ has also entered into an alliance with Air China for flights between China and Australia. Just that it seems a couple of steps behind. However, there are situational differences between Qantas and ANZ although the challenges may be similar. Among the factors for ANZ’s success, ANZ chairman Tony Carter cited “the continued development of our alliance partner relationships”. ANZ and Air China will jointly launch a Peking-Auckland service in December.

Mr Carter is optimistic about ANZ’s immediate future. He said, “Given the current known operating environment, along with our increased capacity and improved operating efficiencies, we expect to achieve significant earnings growth in the coming year.” How “significant” that will be is to be seen, but Mr Carter seemed encouraged by “current sales momentum”. Of course, the lower fuel prices help, but then as Qantas Joyce said, “Every airline gets the benefit.” What lifted Qantas above the rest, according to Mr Joyce, was its transformation program. This does not mean ANZ should roll out a similar program. Far from it. We’d rather be surprised by ANZ’s knack for innovation a la Lord of the Rings.

This is an abridged version of the article which was first published in Aspire Aviation, titled “Partnership is Air New Zealand’s answer to litmus test” .

Advertisements

About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: