Is Air New Zealand a successful and innovative airline or is it marginalizing its position and is ultimately doomed? After the demise of Ansett Australia, Air New Zealand bounced back pretty quickly to its pre-Ansett level of profitability after the New Zealand government rescued the airline. The decision to bail out and save Air New Zealand from financial collapse was important for a geographically isolated nation so dependent on good transportation linkages and the contribution tourism made to the economy. But should Air New Zealand fail again would it still be in the national interest to rescue the airline again?
Has Air New Zealand respected the reasons why it was recused and continued to provide that vital transportation linkages and develop those important markets for inbound tourism growth?
I’m sure talking about the potential of Air New Zealand failing again will not be popular with the government looking to sell down its shareholding. Air New Zealand already being a publically listed company on the share market should have been the easiest and quickest of all the asset sales. The fact it has not happened yet reflects poorly in my opinion on the financial health and future growth prospects of the airline under its current strategy.
During the late 80’s and 90’s Air New Zealand was a champion of inbound tourism development and growth for New Zealand. Since the late 90’s international capacity has stagnated as the airline focuses on load factors and yields in a margin strategy, not a growth strategy. As detailed in Figure 1 Air NZ’s international capacity has increased a tiny 2.5% in 16 years as measured by ASK’s. In contrast inbound tourism has grown 82.8% and NZ resident short term departures have increased 51.7% over the same period 1996 to 2012. As the statistics show Air NZ’s relevance in the market has eroded significantly. The combined inbound and outbound markets have grown a total of 67.4% yet Air NZ has offered up only 2.5% capacity growth. The airline has passenger growth greater than the 2.5% capacity growth with an increased load factor, up from a low 68.4% in 1996 to a high 83.1% in 2012.
In addition, the average distance an international passenger was carried by the airline has reduced by 18.4% over that same time period as shown in figure 2. This means that the short haul markets of the Tasman and Pacific Islands have become a greater proportion of the total international business.
Airline capacity for New Zealand tourism growth has come from the collection of all the other airlines servicing the New Zealand market. To what extent the Air NZ margin strategy has had on total tourism is any ones guess.
For me the big questions facing Air NZ for its future survival is how it will position itself in an increasing global market where airlines are consolidating and alliances are changing:
- Is the Star Alliance membership adding value?
- Cost versus benefits
- Doesn’t appear to have delivered much growth
- Relationships with non-Star airlines potentially worth more
- Growing investment in Virgin Australia and the implications of the Etihad Airways relationship?
- Can the business model survive as a niche market airline?
- Impact of further growth by Jetstar in the domestic and regional market, and the potential impact of a Jetstar Auckland hub.
- Cost competitiveness.
Air New Zealand needs to focus on its fundamental business as an airline and provide for structural growth and cost competitiveness.
As an example here is a list right off the top of my head of routes/markets that Air New Zealand has cancelled for one reason or another over those past 16 years as it swaps and changes its capacity around. This list is in no way scientific or fully inclusive. There are some big inbound tourism markets here that Air New Zealand no longer has a presence in:Auckland-Beijing Auckland-Taipei Auckland-Fukuoka Auckland-Nagoya Auckland-Seoul Auckland-Singapore Brisbane-Taipei Brisbane-Bangkok Brisbane-Kuala Lumpur Brisbane-Seoul Brisbane-Osaka Sydney-Bangkok Sydney-Los Angeles Bali-Singapore Nadi-Nagoya Nadi-Tokyo Nadi-Honolulu Nadi-Los Angeles Nadi-Rarotonga Nadi-Seoul Apia-Los Angeles Apia-Honolulu Tonga-Apia Tonga-Honolulu Tahiti-Los Angeles Rarotonga-Tahiti Christchurch-Singapore Christchurch-Los Angeles Hong Kong-London