Back in Black
From the distinctive livery and striking interiors of its aircraft, to its latest strong financial results, Air New Zealand (ANZ) is in the black.
Just like its formidable and world famous ‘all-blacks’ national rugby team, New Zealand’s airline has found a winning formula in a highly competitive environment. Different fields – same determined approach.
New Zealand is a long way from anywhere else, with a small population of a little over four million people but as with the rugby team, the national airline is up for any challenge. ANZ knows that it can be outfought in scale of marketing budget, or fleet size, by bigger competitors, but it can’t be out thought.
It has a growing reputation for not just doing things differently but doing things that make it distinctive, innovative and memorable. In short, delivering a customer experience that gets noticed.
High profile marketing agreements over the past decade with the ‘Lord of the Rings’ and ‘Hobbit’ film trilogies have helped showcase the country and the airline has been able to capitalise on that. New Zealand is certainly a beautiful place, with scenery that is both picturesque and dramatic. The feature films were undoubtedly successful – beyond even what ANZ or Tourism New Zealand could have imagined – but that’s only part of the story, the airline has been making strategic decisions on aircraft, routes and partnerships that are continuing to grow the business.
ANZ is simplifying what was a mixed fleet and bringing in newer and more efficient aircraft. They are now concentrating on developing a combination of Boeing 777 and 787 Dreamliner aircraft for long-haul operations, underpinned primarily by the Airbus A320 family for regional and domestic routes. As a result, passenger numbers are up and so are profits.
ANZ committed to the Dreamliner back in 2004 – when it was initially being marketed by Boeing as the 7E7 – and as Boeing’s programme firmed up, so did ANZ’s resolve. They selected the larger 787-9 version of the Dreamliner family in an initial order for ten aircraft. The airline has subsequently increased that to 12 with deliveries running through to 2018.
The airline says it is not risk averse in making fundamental decisions about its future. As an end-of-line carrier it cannot operate as a hub for onward travel, so ANZ took the decision in the early 2000s to focus on a point-to-point network, serving the Pacific Rim as the core of its international long-haul business. They believed the new Boeing 787 with its game-changing economics fitted perfectly with the business plan. Here was an aircraft that ANZ felt was sized appropriately and efficient enough to make direct connections, to and from New Zealand, profitable.
In 2014, ten years after selecting the Dreamliner, ANZ successfully put the 787-9 with Rolls-Royce Trent 1000 engines into service as the aircraft’s launch customer. It also celebrated the 75th anniversary of the airline; a new chapter had begun in the development of ANZ. They declared record earnings of $332 million and a net profit of $262 million for 2014. This year it is on track to do even better with estimates focusing around the $490 million annual earnings mark. If so, it will be the fourth consecutive year of growth.
From a desperate position of bankruptcy in 2001, when the impact of SARS and the 9/11 terrorist attacks contributed to the airline calling in the administrators and declaring the biggest loss in the country’s history of $1.4 billion – ANZ is an airline transformed. The government had to step in to save its flag carrier that year and a new CEO, Ralph Norris, was appointed. At that time, one of his criticisms was that the business seemed to focus on ‘flying planes rather than people’ and he set about changing that. His observation still resonates within the airline today.
“We start all our decision-making processes by thinking about our customer and what we can do for them. We know that on long-haul about 65 per cent of our customers are visitors. We are predominantly flying leisure rather than business customers and so that drives our product decisions on the aircraft to make their experience the best it can be,” says David Morgan, Chief Pilot for ANZ.
It was Cpt David Morgan who was at the controls for the delivery flight last July of the first 787-9 from Boeing in Seattle to Auckland. He knew that the arrival of the 787-9 was a major event for the airline, but it was also a big deal for the country. When you are an isolated island nation, then aviation plays an important role in linking the communities, and the nation, to the rest of the world.
That delivery flight may have felt like the start of an era, but in some ways it was the culmination of a great deal of work led by Chief Operations Officer Bruce Parton and Cpt Morgan in the run up to the introduction of the aircraft to the airline. This was a significant technical and engineering challenge for ANZ; the aircraft was the first of its type to go into service. Bruce Parton takes up the story.
“We took it incredibly seriously. We felt an enormous responsibility and obligation to the airline and to our partners, Boeing and Rolls-Royce. We had to ensure that the 787-9 entered service well. We were also working with the regulators, the FAA and New Zealand CAA to obtain regulatory approval for the new 787-9,” he says.
The airline held a number of intensive working sessions over a six month period prior to entry into service (EIS), where it brought all the suppliers down to Auckland. They would go through the EIS programme piece by piece to see where each company was relative to the plan. Boeing supported ANZ with its EIS experts giving advice and imparting their experience.
“We have a long relationship with Boeing and that helped because we needed them to be open and frank with us on the progress and the issues – trusting in that openness was vital – everyone’s reputation was on the line,” adds Bruce.
Most of the flight proving was done in North America, thereafter in New Zealand the airline spent a month trying and testing every aspect of it before beginning revenue service. They checked it fitted at the gates, changed tyres, rehearsed engineering processes and even had over 200 volunteers sit on the plane (while it was on the ground) to role-play as customers, trying out the in-flight entertainment (IFE) system and customer service on board.
“We also had great cooperation from Rolls-Royce, in the months before receiving the aircraft,” says Bruce. “Just as with Boeing, we have enjoyed a long relationship with Rolls-Royce over many decades. We had ANZ engineers working with the Rolls-Royce team in Seattle for around three months and that was incredibly valuable. Rolls-Royce was really collaborative in allowing our people to actually work on the engines rather than just observe. Bear in mind that at this point the engines were not owned by us. Our guys worked with the Trent 1000 on the stands, in the test bed and really got familiar with the engine.
“I saw that as a great facet of our relationship with Rolls-Royce. We shared our airline/operators experience with them and the Rolls team shared their deep engineering knowledge with us. It meant that by the time we received the aircraft our engineers were familiar with the engine and we knew we were in pretty good shape.
“The whole plane and the engines have performed really well in service,” says Bruce. “It’s also good for us to see that Rolls-Royce is now committing more into Singapore and that adds a lot of value for us in areas like maintenance and support as we have decision makers in Singapore that we can now talk to in the same time zone.
“The 787 is already a customer friendly aircraft with a great environment created by Boeing inside the cabin in terms of humidity and pressurisation. People love the touch control windows and the sense of space inside the 787, so we already had an excellent palette on which to build our offering. We took that forward by installing our distinctive black seating and adding some creative touches inside the aircraft such as chandeliers in the toilets and bookshelf wallpaper. It’s quirky, we want people to enjoy the flight and see we have a sense of humour. We also worked really hard with our IFE partner, Panasonic. We have enhanced the IFE with apps so that, for example, a person coming to New Zealand from America can go onto Tripadvisor and start to plan their visit while they are actually flying en route.”
So inside the 787-9 cabin, ANZ has made its mark and the passengers get a real feel for the personality of ANZ, but what’s it like to fly?
“It flies beautifully,” says Cpt Morgan. “We are thrilled with the 787 and the Trent 1000 engines. It’s a great working environment, it’s quiet; the pressurisation improvements mean that physiologically it’s better for the crew. The finance team like it too because of the economics of the aircraft, but what really matters is what our customers think and there is no doubt that they love it,” says Cpt Morgan.
To highlight the economics, he relays the story of an ANZ 777 flying to Shanghai with 29 tons of payload that used 82 tons of fuel to complete the journey. The next day says Cpt Morgan, a 787 made the same trip carrying 29.1 tons of payload and used 62 tons of fuel. “You are looking at a fuel saving of over 20 per cent – it’s massive,” he adds.
The airline currently has three 787-9s in service plying key routes to Shanghai, Tokyo and Perth, and the airline says it is ‘exceeding expectations’. As well as the Trent 1000-powered 787s, ANZ is also operating eight refurbished 777 aircraft powered by Rolls-Royce Trent 800s.
Making the right decisions on the fleet is paying dividends and another aspect of the airline’s current ‘Go Beyond’ strategy is to link with like-minded partners to develop additional growth and revenue. ANZ describes these partnerships as fundamental to achieving better penetration of markets where it feels it may not have the scale, or finances, to do so alone.
The airline is careful to choose partners that it believes have similar approaches to providing the best customer service, in some cases outside the Star Alliance. Agreements are in place with Cathay Pacific for example (a OneWorld member), Virgin Australia and, at the start of 2015, a new partnership was implemented with Singapore Airlines.
Bruce Parton explains: “We have a responsibility to our country to work with our partners and increase the number of visitors coming to New Zealand. We have to represent the nation well and collaborate in a sensible way to increase business on behalf of New Zealand. So the recent SIA deal for example is all about helping to get more people to commit to coming here from Singapore.”
That arrangement began in January with ANZ operating a 777 and Singapore Airlines flying a Trent 900-powered A380 between Auckland and Singapore. In addition, there is a Singapore to Christchurch route using a Singapore Airlines Trent 800-powered 777. The carriers aim to increase capacity by up to 30 per cent year-round over time.
“We set up these partnerships very carefully to ensure that both sides are aware of how we will grow business, look after our customers and develop relationships for the future. These are revenue alliances and they must work for both parties, the focus has to be on increasing the number of passengers for our partners and for ANZ. Importantly though, you must first of all find a partner you know you can work with. That’s not as simple as it sounds. Some airlines may be big and successful but just not right for us and our philosophy may not suit them either,” says Bruce.
“However, when we get it right, it has benefits beyond revenue and growth. We feel we are open-minded enough to learn from others – particularly about understanding what works well for Asian customers. We all like to think we have great products but you need to be willing to change if customers are telling you what they want – we think we are,” says Bruce.
Listening to customers is what the management of ANZ are determined to stay focused on, believing that the minute you start paying attention to your own publicity and admiring your awards, you start to get a feeling of self-importance. That could mean losing sight of the fact that you are there to serve customers and that they have options. Remember the ‘we fly people not planes’ mantra?
“This is a brutal industry, we take our work seriously but we try not to take ourselves too seriously as a management team,” says Bruce.
“We remain constructively dissatisfied,” agrees Cpt Morgan. “We are seeking to build an airline that continues to grow profitably, that is resilient to the shocks that often affect our industry and that is always customer centric. We want to be focused on serving the New Zealand and the Pacific Rim with a world-class product and on providing a proper return to our shareholders.”
If the airline takes on the competition in the same way that the ‘all-blacks’ do on the rugby field, who would bet against them?