New Qantas safety video: Attraction or distraction?

Courtesy Qantas

Courtesy Qantas

Ever since Air New Zealand made waves breaking away from the conventional in-flight safety video, featuring among other things Middle Earth, a number of other airlines have taken up the challenge to “engage” the travellers, many of them who may find the old style too boring to deserve attention.

The new Qantas video features Australian destinations across every state and territory, ranging from the Victorian ski fields to sand surfing at Queensland’s Moreton Island, thus killing two birds with one stone promoting travel to these destinations at the same time. Qantas chief executive Alan Joyce admits: “This video doubles as a perfect tourism ad.”

While the main goal (as it should be) was to make the safety video “engaging as well as informative,” there are questions about the effectiveness of getting across the primary message as to what to do to keep safe and how to react in the case of an emergency. There is the important question of context. The order of priority in presentation is not necessary received in the same order. And, let’s face it, people get tired of most re-runs soon enough.

Air New Zealand leads the pack

Courtesy Air New Zealand

Courtesy Air New Zealand

Air New Zealand is the world’s best airline according to AirlineRatings.com based on criteria that include fleet age, safety, profitability and leadership in innovation for passenger comfort. The agency’s Airline Excellence Awards program which lists the winning airlines is endorsed by the International Civil Aviation Organization.

Many travellers would recognize ANZ for its attention-grabbing in-flight safety video that takes them into Middle Earth, the kind of out-of-the-aircraft features that a few other airlines have tried to imitate but fared only poorly. AirlineRatings.com Editor-in-Chief Geoffrey Thomas said: “Air New Zealand came out number one in virtually all of our audit criteria, which is an exceptional performance.” The airline was favoured for its record-breaking financial performance, award-winning in-flight innovations, operational safety, environmental leadership and motivation of its staff.

Skycouch: Picture courtesy Air New Zealand

Skycouch: Picture courtesy Air New Zealand

But, of course, there are surveys and there are surveys that publish their own lists of favourites. Some airlines such as Singapore Airlines (SIA) and Cathay Pacific have a ubiquitous presence, and there also notable absences. This is where it is most telling, bearing in mind that the ranking is dependent on several factors such as the excellence-defining criteria and the population surveyed.

The other nine airlines ranked behind ANZ in the top ten list by AirlineRatings.com are in descending order: Qantas, SIA, Cathay, Virgin Atlantic, British Airways (BA), Etihad, All Nippon Airways, EVA Air and Lufthansa.

It is interesting to note that the top two airlines come from the remote Southwest Pacific. Qantas has in recent years been working on upgrading its product offerings, winning accolades for catering and airport lounges. Not surprisingly, innovation along with good service seem to be the driving winning streak going down the list – SIA and Cathay for their premium economy and revamped business classes, Virgin for its cabin ambience and friendly crew, BA for its leadership in in-flight entertainment, and Etihad for its equally impressive service in front and at the back of the aircraft.

Notable absences in the list are US carriers (no surprise there) and two of the big three Middle-East carriers (Emirates and Qatar).

Many survey rankings are skewed by the weight they place on service in the premium classes. However, Mr Thomas of AirlineRatings.com said: “We are looking for leadership and airlines that innovate to make a real difference to the passenger experience particularly in economy class.” Considering that the majority of travellers are seated in coach, it is time that airlines crowned with the halo of excellence pay more attention at the back of the aircraft, for this may well make the difference as the competition intensifies. And, it is where the differentiation becomes even more challenging. Perhaps too, this could be the reason why Emirates and Qatar, known for their lavish premium service, did not make it to the top ten of the list.

Chinese conglomerates beat SIA in Virgin Australia acquisition

Courtesy GETTY IMAGES

Courtesy GETTY IMAGES

IN a separate article I wrote about Singapore Airlines’ interest in taking up Air New Zealand’s stake in Virgin Australia, its concern being that “if it did not step into the void left by Air NZ, it might op[en the door to a competitor” (What price for SIA in its pursuit of a Virgin bride? TODAY, Apr 27, 2016), I mentioned the likelihood of Chinese carriers making that move. And so it has come to pass.

The HNA Aviation Group which owns China’s fast growing Hainan Airlines (the fourth largest in the country) was the first to move in, acquiring 13 per cent of Virgin Australia with plans to increasing its stake to almost 20 per cent. Virgin chief executive John Borghetti welcome the acquisition as “a big coup” that “sets us up for very, very good growth going forward in that very lucrative inbound but also outbound, traffic between Australia and China.”

Indeed, there has been a healthy growth in traffic between Australia and China in recent years. According to Mr Borghetti, more than one million Chinese travelers visited Australia in 2015 and this number is expected to grow to 1.5 million by 2020. Clearly HNA sees the potential and the opportunity could not have come a better time.

Now a second Chinese conglomerate Nanshan Group hopes to reap the benefit of increased tourism in Australia. The firm has bought a 20-per-cent stake in Virgin Australia from Air New Zealand. Air NZ chairman Tony Carter said: “We believe Nanshan Group will be a very strong, positive and complimentary shareholder for Virgin Australia. The sale will allow Air New Zealand to focus on its own growth opportunities, while still continuing its long-standing alliance with Virgin Australia on the trans-Tasman network.”

Both HNA Aviation Group and Nanshan Group will now join SIA and Etihad Airways as co-partners in the Australian carrier. While Etihad has not expressed any interest in buying off Air NZ, SIA appears once again to have lost the lead in a game that started out as the Singapore carrier’s to play.

Another Virgin on the rocks

Courtesy Virgin Australia

Courtesy Virgin Australia

THE name Virgin is ringing in the air. Following on the heels of Alaska Airlines paying US$2.6 billion for Virgin America, wrenching the bid from rival JetBlue Airways, Singapore Airlines (SIA) announced it has increased its stake in Virgin Australia form 22.91 per cent to 23.11 per cent at a cost of A$3.18 million (US$2.39 million). SIA has approval from Australia’s Foreign Investment Review Board to increase its stake to 25.9 per cent.

Air New Zealand, the largest shareholder of Virgin Australia with a stake of 25.89 per cent, said it was considering an exit to focus on other growth areas. If SIA takes up its full allotment, it will be a larger partner than Etihad Airways, which owns about 24 per cent of the Australian carrier. The Virgin Group holds only a stake of about 10 per cent. There is speculation that SIA is poised to go higher, subject to approval from the relevant Australian authorities.

History repeats itself. SIA’s relationship with the Virgin Group goes as far back as 1999 when the Singapore carrier made headline news buying 49 per cent of Virgin Atlantic at a cost of £600m (US$844 million). What then appeared to be a coup turned out not be a lemon, which after years of lacklustre performance, was sold to Delta Airlines at a hefty loss in 2014 for £224m.

Yet the circumstances today might be a little different. SIA feels more pressured to secure its Australian market against national carrier Qantas. Together with the other partners, SIA is a contributor to an A$425 million loan to Virgin Australia to keep it above waters. While Virgin’s trans-Pacific flights to the US would accomplish a dream long in the making for SIA, it is not as imperative as it was then when it had hoped Virgin Atlantic would augment its trans-Atlantic foray into the US east coast. It could be worse if Air New Zealand’s stake in the Australian carrier falls into the hands of competing rivals that may threaten SIA’s wider market beyond Australia.

SIA paid dearly for the increases take in Virgin Australia at 46.72 cents per share which is well above the current price of 35.5 cents. So it is said that Alaska Airlines too paid a high price to take over Virgin America, which will enlarge Alaska’s west coast market and give it access to the east coast. Virgin chief Richard Branson proudly admitted: “They paid a high price for a great brand.” Indeed, Virgin America, voted consistently as the country’s best airlines in the past four years, could add to Alaska which itself is known for providing consistently good service at reasonable fares. Somehow Virgin Australia has tried hard but with not as much success as expected to bite off Qantas’ 80 per cent market share. How much more can SIA contribute, noting the struggle of erstwhile Tigerair Australia?

SIA and Virgin are reputable brand names. While there is a chance that they can build on each other’s strength, there is no guarantee that the chemistry will work twice as well.

Which Asian airlines might be interested to buy into Virgin America?

Photo courtesy Virgin America

Photo courtesy Virgin America

UP for sale, Virgin America has some suitors lining up. It has received takeover bids from JetBlue Airways Corp and Alaska Air Group Inc. In this era of the mega carriers (consider the mergers of United Airlines and Continental Airlines, Delta Air Lines and Northwest Airlines, and American Airlines and USAir), a tie-up with another carrier strengthen Virgin’s competitive ability. And while it is almost certain that the merger would be with another American carrier, with analysts placing bets on JetBlue as the best fit, apparently some unidentified Asian carriers have also expressed interest. Still, be that as a remote possibility, one cannot help but be curious and speculate who the likely candidates might be.

Two big names come to mind immediately because of their successes, networks and financial capability, namely Cathay Pacific Airways and Singapore Airlines. Both airlines are keen on expanding their US market. Cathay flies to Boston, Chicago, Los Angeles, New York and San Francisco while Singapore Airlines (SIA) operates to Houston, Los Angeles, New York and San Francisco. Both airlines have codeshare access to several other destinations. Cathay’s codeshare partners include Alaska Airlines and American Airlines while SIA already codeshares with Virgin and with JetBlue.

So it looks like SIA more than Cathay would be favoured on relationships alone. Since foreign ownership rules governing US airlines require the bid to be submitted jointly with a US partner. It would be convenient for SIA to join hands with JetBlue. Of course, Cathay may partner Alaska Airways, but historically Cathay is not quite interested in equity participation. Although it has a 20.3% stake in Air China and 49% in Air China Cargo, that could be a matter of expedience to secure its market in the growing China mainland market.

SIA on the other hand, limited by a hinterland market, tried in its early years to grow through acquisitions. In 1999, it bought 49% of Virgin Atlantic and subsequently 25% of Air New Zealand. Although both buys subsequently proved to be lemons, resulting in heavy losses, the misstep might be less strategic than circumstantial. Unfortunately that has hurt SIA deeply more psychologically than financially as the airline became more cautious about such moves. In subsequent years it failed in its seemingly reluctant bid for a stake in China Eastern Airlines, and the SIA Group was plagued by the poor decisions of its budget subsidiary Tigerair in joint ventures in Indonesia and the Philippines. In Oct 2012 SIA bought a 10% stake in Virgin Australia, joining tow other foreign partners namely Air New Zealand and Etihad Airways. In much the same way that Cathay needed to secure its market in China partnering with Air China, SIA needed to secure its Australian market against the competition by Qantas. Six months after, SIA increased its stake to 19.9%.

But is SIA even interested in a stake in Virgin when its codeshare partnership with JetBlue already places it in an advantageous position to benefit from a JetBlue takeover of Virgin? Would a bid jointly with an Asian partner jeopardise JetBlue’s chances if the powers that be preferred an all-American merger a la the big three of United, Delta and American?

Besides Cathay and SIA, one should not ignore the voracious appetite of the China carriers in the national trend to acquire foreign assets. And why must it be premised on full-service carriers that are already serving destinations in the US? What about a budget carrier with dreams of new frontiers? Maverick AirAsia chief Tony Fernandes who models himself after Virgin guru Richard Branson and who had been where others were hesitant, even afraid, to go may yet surprise with an expression of interest even if it is no more than just that. He is one of the few airline chiefs who, like Ryanair’s Michael O’Leary and Qantas’ Alan Joyce, understood what an opportune good dose of publicity could do.

All this, of course, is speculative. Asian carriers are likely to be less concerned this time than when the mergers of the American big three took place. Together with Southwest Airlines, the big three control 80% of the American market. Virgin and its alleged interested parties JetBlue and Alaska are all largely domestic carriers. Even if Southwest throws in a bid (but for its size that may not pass the antitrust law as easily), it is still the same scenario. SIA’s connections with JetBlue and Virgin will continue to stand it in good stead, but if it’s Alaska that carries the day, then it is Cathay that stands to benefit from the new, extended connection. Or does it really matter when there are already subset agreements across partnership lines that allow you to fly an airline of one alliance and connect on another in a rival group? That’s how complex today’s aviation has become.

What conclusions can you draw in an airlines survey?

SIA courtesy SIA

WE continue to be fascinated by rankings of the world`s best airlines, although the results of most surveys – take away some bias here and there – are quite predictable and almost similar across the board. The winners by and large boast excellent cabin service, great food, comprehensive in-flight entertainment and innumerable choices, more generous legroom than what their competitors offer, and frills such as complimentary champagne and brand name overnight kit. It is all about creature comforts. And the impressions are understandably almost always skewed by the luxuries of the upper classes.

Traveller magazine Conde Nast has just posted its list of the world’s best airlines, surveyed among some 128,000 readers. Of course this is not the definitive list of excellence to the detail, in the same way that no other list can be as definitive without considering factors such as the type of respondents involved, the scope of the survey and the criteria adopted, but there are nevertheless interesting conclusions to be drawn from them. So often it is more interesting to look at the omissions.

Long haul can impress or disappoint

Singapore Airlines (SIA) is a perennial favorite of Conde Nast readers, ranking top for 27 of 28 years. It is hardly surprising, which to be saying it seems even redundant. The airline has long earned the reputation as one of the world’s best airlines, and is frequently celebrated in other surveys as well. It was ranked second after Qatar Airways in the last Skytrax survey. It is hard to find a match that depicts consistency in excellence. The real clincher seems to be in its long haul operations – such flights that are likely to elicit the flaks when passengers are apt to become more stressed and demanding. Here is where SIA is able to make the difference by a well-trained crew that anticipates a passenger’s needs, always mindful the passenger’s comfort first and foremost in the service.

All the airlines in Conde Nast’s top ten are long haul operators, with the exception of Porter Airlines which is more a city shuttle that flies between Toronto in Canada and US destinations such as Boston, Charleston and Myrtle Beach.

While the long haul impresses, it can also take apart an airline’s reputation, which explains why some airlines are inundated with complaints about being handled like a can of sardines. Interestingly, the Conde Nast list of best American carriers is made up of short-haul operators to the exclusion of the big three of United Airlines, American Airlines and Delta Air Lines. Virgin America is ranked first followed by JetBlue, Hawaiian Airlines, Southwest Airlines and Alaska Airlines.

Dominance by Asian and Gulf Carriers

Again, it is not surprising that Conde Nast’s top ten ranks are dominated by Asian and Gulf carriers, which together were placed in not only in the top three ranks but also seven of the top ten positions. The Gulf big three of Emirates Airlines, Qatar Airways and Etihad Airways were second, third and fifth respectively. Qatar was tops in the earlier Skytrax survey, ahead of Emirates (5th) and Etihad (6th). Other Asian airlines in the Conde Nast list are Japan Airlines (6th), Korean Air (7th) and Cathay Pacific (10th). Both SIA and Cathay were also ranked among Skytrax’s top ten airlines.

Dominance by Asian and Gulf carriers means the stark exclusion of airlines of other regions. Only one European airline – Virgin Atlantic – was listed, and in fourth placing. One asks: Where are British Airways, Air France and Lufthansa although going further down the list you will find Swiss International Air Lines (17th) and Finnair (20th)?

That and the marked absence of US carriers demonstrate the superior service culture of Asian and Gulf carriers and their growing popularity that continue to put pressure on their rivals in the competition. The US big recently accused the Gulf big three of unfair competition supported by state subsidies. In truth, North American airlines are not inefficient, but they lack the soft pampering touches of their competitors. There is a host of pertinent questions. Can US carriers be as friendly or, to go one further, do better? And, ultimately, do they even see the need?

Luxury improves image

Etihad boasts the “residence” suite that comes with a bedroom, private bath with shower and lounge. That is for now the forerunner in the race for the ultimate luxury in the air, leaps ahead of SIA’s first class suites and all the other airlines’ flat bed allures. There are also the extras: Etihad provides a concierge service that will make a dinner reservation for you when you land, and some airlines offer door-to-airport limousine services. The slant towards premium classes is to be expected, for that is what makes news even as the perks are limited to a smaller but more lucrative market of the travelling population. If there is one airline that seems to be doing much more for coach than many others, it is Air New Zealand, which offers “Skycouch” in economy – seats that can be converted into a lie-flat double bed – but then again, this is limited to only three seats in the cabin, reminiscent of the days when EVA designates a small number of seats as the ill-defined premium economy before the subclass takes on an identity of its own today.

Comparison is the crux

In any survey, the crux is the comparison, particularly when they are all said to be providing good cabin service and excellent food amongst the creature comforts. The Conde Nast survey again surfaces the rivalry between SIA and Cathay Pacific in the top ten, favoring the former. Interestingly, Japan Airlines (6th) is ranked ahead of All Nippon Airways (11th), and Korean Air (7th) ahead of Asiana Airlines. That indicates a reversal of order that has been the reading of many past surveys, and may well portend how the competition may be trending.

In the case of Gulf carriers, the ranking rivalry among Emirates, Qatar and Etihad is very much a close call going by several international surveys. At the same time, we cannot ignore the inclusion of Turkish Airlines in Conde Nast’s top 20. Turkish was fourth in the Skytrax survey.

In the close rivalry between Qantas (15th) and Virgin Australia (19th), the former continues to enjoy an advantage over the latter.

What else matters? All the hype about going green as the world becomes increasingly conscious of the impact of climate change? That Korean Air prepares its food from humanely raised and organically grown produce. That El Al offers an iPad rental program. That Virgin Atlantic has a stand-up bar. That Qantas offers Select on Q-Eat that allows you to pre-order your meal. That Air New Zealand makes its safety presentation more entertaining than others. That British Airways allows you to log on to a movie as soon as you board and stay with it until the aircraft is docked at the gate on arrival. The list goes on. And one wonders.

This article was first published in Aspire Aviation.

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” .