nz_crew
May 11, 06, 1:02 am
The following is the text of a speech Rob Fyfe gave recently regarding the QF/NZ codeshare. Comments?
There’s just one issue that most of you here today will want to hear about.
The effect on Wellington of our proposed trans-Tasman code share with Qantas.
I’ll speak about that in a minute.
But first I want to talk briefly about where we are taking Air New Zealand.
In the last twelve months our competitors have slashed seating capacity in this market.
In April, Cathay Pacific cut capacity to Hong Kong by 42 percent when they cancelled five of their 12 flights into New Zealand.
Singapore Airlines have announced a reduction in capacity into New Zealand twice this year.
From July their total capacity into New Zealand will be down 21.5 percent when they reduce flights from both Auckland and Christchurch to Singapore.
Malaysian Airlines have cut their capacity to New Zealand for the Northern summer season by 15 percent.
They are all redeploying that capacity elsewhere around the globe, away from our country.
And against this background, what is Air New Zealand doing?
Despite Inraftil and Wellington Airport’s valiant attempts to try and convince New Zealanders that I’m hell bent on shrinking this airline, we’re actually in the midst of the largest capacity expansion ever attempted in Air New Zealand’s history.
We’re in the middle of a huge $2 billion investment programme to position Air New Zealand with a world class product.
We are growing seating capacity into this country… by 26 percent on our long haul fleet alone next year.
New planes . . . the 777 . . . the Q300 . . . the A320 and new world class interiors for our long haul fleet.
We’ve launched new routes to Adelaide, San Francisco, Shanghai, a second daily service to London.
We are continuing to invest $80 million offshore every year promoting New Zealand as a destination, and at least another $50 million each year onshore to drive domestic traffic.
And we spend millions each year across the country in philanthropy and sponsorship.
The sole reason for us investing all this money, is to grow this airline and to grow travel on routes to/from and within New Zealand . . . because that’s all we do.
We don’t fly anywhere else . . . we don’t have anywhere else to deploy our aircraft . . . we have to make New Zealand work.
Because we are in the middle of this massive period of investment, we cannot afford to have parts of the business that perform at anything less than world class.
Now, many of you here today understand the dynamics of running a business.
As business people you will also appreciate that continuing to pour money into part of an operation that is making large on-going losses is not only foolish, it is irresponsible.
No matter what the emotional attachment to a venture may be, you must make decisions concerning its future rationally.
Many of you will have seen the media reports over the last week about our application to code share with Qantas on the Tasman, including to and from Wellington, and you will have seen claims about its effects on the Wellington region.
The claims are highly emotive… in some cases pure political grandstanding and quite frankly naive.
But even if unpalatable, the facts by contrast are simple.
The facts:
If we review year on year performance as of last month, the total market passenger numbers on Wellington to Australia sectors have declined by approximately 4 percent.
They are not increasing, as one commentator suggested earlier this week.
Air New Zealand itself operates an airline on the Tasman that loses tens of millions of dollars a year and several million dollars worth of that loss each year is on flights out of Wellington.
Our Wellington flights are only 66 percent full Trans-Tasman; by comparison on the rest of the international network where our flights are on average 74 percent full.
What that means in simple terms is that on average there are around 50 empty seats on each 146 seat Air New Zealand A320 flying into, or out of Wellington trans-Tasman.
Every day.
In fact the economics on the Tasman at the moment are so bad that Pacific Blue and Freedom tried to operate here and both left routes because they simply couldn’t make any money.
Emirates never even started.
One of the main reasons airlines can’t make any money out of Wellington is the amount that we are charged in landing fees and operating costs by Wellington airport.
To make an international turnaround of an A320 out of Wellington costs around 19 percent more than Auckland and 27 percent more than Christchurch.
Even their parking is pricey, it costs around the same to park your car at Wellington airport for two hours in New Zealand dollars as it does to feed a parking meter for two hours in central London!
Wellington is one of the most expensive airports in the world to operate from.
But the owners of the Airport seem to think it is better to continue making excessive profits from such charges rather than work with airlines to try grow traffic into this market.
Of course from the Airport’s perspective, as you’ve seen from their spin of recent weeks, all of Wellington woes are caused by the airlines.
And it’s not just the airports.
If I look at the hotels current statistics, Wellington Hotels are currently the most expensive in the country, and they enjoy occupancy rates of 84 percent.
84 percent makes our 66 percent look very dismal.
No wonder we’re losing money!
What have we tried to do about it?
We have spent a lot of time trying to reverse these losses to get these Trans-Tasman routes to break-even, and eventually profit.
We’ve introduced the A320, which as a more efficient aircraft and saves us 15 percent in operating costs on these routes.
We have just begun to merge the flying of our Freedom and Air New Zealand A320 fleets into one operating company, to gain further efficiencies.
We’ve also invested a large amount in extra marketing to grow traffic to this region, despite uninformed claims that we need to improve our marketing of Wellington as a destination.
In fact, Wellington’s regional tourism operator receives nearly five times the funding of its nearest competitor, by far the lions share of money we allocate to these organisations.
What have we done for Wellington in the past?
We have long term tourism and community partnerships in this region that we will not simply walk away from.
We sponsor the Montana World of Wearable Art, The Lord of the Rings Exhibition at Te Papa, The New Zealand International Rugby Sevens, in fact our combined spend on these events alone is in excess of half a million dollars.
In October this year, we will bring an event to Wellington that will generate an estimated $10 million of direct economic benefit to your region, the 16th Annual Golden Oldies Rugby festival with 4500 players from 15 countries.
Over the last five years Air New Zealand has grown Wellington Domestic customer numbers by 39 percent off the back of a 25 percent capacity increase.
And we’ve grown Tasman International customers out of Wellington 11 percent off the back of a 23 percent capacity increase.
The Tasman problems won’t go away
But Wellington trans-Tasman problems won’t go away.
Despite our efforts to cut costs, improve our efficiency, and focus on our marketing, as I said earlier, we are still faced with Trans-Tasman routes into and out of Wellington that are losing us several million dollars a year.
Aggregating the losses we will have made by the end of this financial year, Air New Zealand will have lost a total of at least $35 million on these Wellington routes since 2003.
And the problems aren’t limited to the passenger side of the operation.
Just 21 percent of the available belly space in our A320’s into and out of Wellington trans-Tasman is currently filled with freight.
Freight forwarders are currently roading goods to Auckland for consolidation before flying them to Australia.
What are the options now?
Our choices in a situation like this are limited.
We can pull out of the market all together and that is simply not a preferred option given that the Tasman represents 20 percent of all revenue generated by Air New Zealand; it is crucial to the group.
We can reduce our services; not something I want to do due to the broader network implications, but will if it becomes necessary.
We can put our fares up, which is also not a preferred option as it makes us uncompetitive.
Or there is a fourth option.
That option is to reduce costs further and the best way to do this is using a code share which enables us to continue to offer our customers a rich schedule.
But it requires that we accept that a part of this schedule will be operated by another carrier.
What does a code share mean for me?
So let me quickly explain how a code share would affect you.
A code share is actually quite simple;
The reason we have codeshare arrangements is that they enable us to offer our customers a better depth and breadth of schedule that we could offer by solely using our own aircraft.
We operate multiple code shares already around the world with 11 other airlines – airlines such as Singapore Airlines, United Airlines and Japan Airlines to name a few.
With our Tasman proposal - when booking a flight, you will be given an Air New Zealand flight number and you will be told at the time of booking whether Air New Zealand or Qantas will be operating the flight… that is a requirement mandated by the International Air Transport Association.
If you are a corporate or business traveller, it’s likely your travel policy ties you to booking with one particular airline.
More than 30 percent of Air New Zealand’s travel out of Wellington to Melbourne and Sydney is transacted via our corporate travelcard.
Under the code share you would have access to all flights operated by both Qantas and Air New Zealand on the Tasman.
This means in increase in Air NZ Tasman frequencies from 134 a week to 218 a week under the code share, operated by Air NZ and Qantas.
Importantly if you are a member of our Airpoints scheme – you will earn Airpoints Dollars on all these flights, if you book with Air New Zealand.
When you check in at the Air New Zealand counter, you are given an Air New Zealand flight number and boarding pass. If you have access to our lounge facilities you will be able to utilise the Air New Zealand lounges.
You then fly on board an Air New Zealand or a Qantas jet, depending who is operating that service.
What would it mean for schedules?
But most importantly, there are benefits for schedules.
First Wellington - Sydney, an important business and corporate route.
Under the current schedules, Qantas and Air New Zealand depart within half an hour of each other either side of 0630 and at 1530 some days of the week.
Under the code share there would be departures at 0650, 1310 and 1530, plus at times of peak demand on Friday and Sunday, an extra flight at 1700. This gives you much more flexibility to complete a day business trip to Sydney.
Our modelling shows each aircraft will still depart with 35 to 40 seats empty on average, still plenty of spare capacity to get a seat.
Air New Zealand will still operate 9 A320 services a week on this route.
Next, Wellington - Melbourne, a mixed business and leisure route.
Currently departures are clustered around 0600 with one in the afternoon four times a week.
Under the code share you can do a same day return business trip every business day, and on a Sunday.
To allow the airlines to most effectively utilise our fleets means Qantas will operate this route.
And finally, Wellington - Brisbane, primarily a leisure route.
Again, to ensure the most effective utilisation of the fleet, Qantas will operate the aircraft on this route, with newer 737-400 aircraft.
Under the codeshare the flights will leave in the morning to allow a full business day or start to your holiday in Brisbane.
One of the questions I have been asked is why is Qantas operating so many of these services.
Across the entire Tasman network, if you look at the combined capacity of Qantas, Jetstar, Air New Zealand and Freedom – Qantas will operate 47 percent and Air New Zealand will operate 53 percent.
The simple objective of the codeshare is to reduce the number of aircraft required to operate the schedule and at the same time, enhance the schedule through removing wingtip to wingtip flying.
This more optimised allocation of our aircraft enables us to remove two aircraft from the fleet.
This allows the airline to make significant cost savings and in turn the lower cost base allows us the opportunity to sustain lower fares!
I have more questions!
Many of you will have questions you are dying to ask.
First of all, won’t there be a decrease in the number of seats that are available?
Yes, there will, by less than three percent; we are reducing the number of empty seats on the Tasman, not the number of full seats.
But you don’t have to try and figure out whether to believe Wellington airport’s assessment of 10 percent.
The real issue is how many empty seats will still be flying backwards and forwards across the Tasman if this code share proceeds.
Don’t forget, there is already a massive oversupply of seating capacity on the Tasman; remember, all our flights are only two thirds full.
The greatest destroyer of value in the airline industry is over capacity.
In fact Qantas and Air New Zealand combined will be flying 335,000 seats per year out of Wellington, when current demand is only for around 249,000.
That’s a 74 percent load factor, compared with Wellington hotels occupancy rate of 84 percent in March.
You will not miss out on getting a seat, and you can rest assured if the demand for seats looks like its exceeding supply, we will put more capacity into the market.
That’s what airlines do to grow.
What guarantee do you have that we won’t raise prices?
Let me assure you, the airline business is brutally competitive, with very few barriers to entry in New Zealand.
We have one of the most de-regulated airline industries in the world.
If there is even a hint of the code share partners raising prices beyond what is an acceptable level, other airlines will be back in here like a shot, which will promptly drive prices back down again.
We have already invested heavily in the Wellington region, but in the face of these ongoing losses, I am not prepared to invest extra funds and lose even more - it would be irresponsible of me to do so, when I can create a business model that works!
We have designed the code share schedules to maximise the use of the existing A320 fleet, to reduce cost, but most importantly to create a convenient schedule that allows you flexibility to plan trans-Tasman trips.
Why can’t Air New Zealand just wear several million dollars a year of loss on the Tasman out of Wellington, after all Wellington is a crucial business and political centre?
Air New Zealand is a publicly listed company – I like many other shareholders, have a significant portion of my life savings invested in this airline… in other words, I have some skin in the game too.
While we are very committed to Wellington and we hear the voices of many who make great profits out of the passengers we fly to and from Wellington, it is unrealistic to expect Air New Zealand and its 30,000 shareholders to shoulder the burden of all the risk, and wear all the financial losses.
This is a tough industry and loyalty is fickle - we have significant competitive threats.
New Zealanders are quick to fly on our competitors be they Qantas, Emirates, Pacific Blue, Thai, Cathay Pacific, Malaysian and Singapore Airlines if we are not up to scratch, or don’t deliver competitive prices.
As a consequence of this competition, record jet fuel prices, the depreciation of the New Zealand dollar and flat demand, the market is projecting that our profit this year will be half that of last year.
Faced with such challenges we cannot afford to subsidise routes that continue to make on going losses.
As the CEO of a publicly listed company, I am expected to ensure the viability of the business and deliver a return to shareholders who have invested in our company.
I will only do that by operating a healthy, vibrant and growing airline that offers New Zealanders and travellers to New Zealand a world class experience.
We will not let our Tasman losses continue
We appreciate the loyalty that many of you have shown to Air New Zealand in your expressions of concern over the code share proposal.
We are well aware of the passionate pride that many of you feel in this region, and the considerable business successes many of you have already enjoyed, be it in the world class film industry facilities that are drawing work here, the growing viticulture industry in Martinborough, or the increasing recognition of national cultural treasures like Te Papa.
We share your desire to grow tourism and business traffic to your region, and with a degree of self interest too, because we benefit if this happens as well.
Air New Zealand will still maintain a highly visible presence in the capital, with its main trunk domestic jets and regional airlines continuing to operate here, and flights to Sydney 9 times a week.
But it is clear that our Wellington Trans-Tasman routes in their present form are not viable and that the alternatives to remedy them are few.
A code share is the viable option.
What we need to do is find a business model that is viable, so that we can establish a solid and robust economic foundation going forward.
Air New Zealand believes a code share is the best option to address the continued losses that we are making on our trans Tasman routes out of Wellington, and on the Tasman as a whole.
It will offer a better schedule spread of flights, price stability for you as customers, and onward access to further destinations throughout Australia.
The Tasman is a critical market for Air New Zealand which must return to breakeven, and we will then have a business we can continue to grow.
There’s just one issue that most of you here today will want to hear about.
The effect on Wellington of our proposed trans-Tasman code share with Qantas.
I’ll speak about that in a minute.
But first I want to talk briefly about where we are taking Air New Zealand.
In the last twelve months our competitors have slashed seating capacity in this market.
In April, Cathay Pacific cut capacity to Hong Kong by 42 percent when they cancelled five of their 12 flights into New Zealand.
Singapore Airlines have announced a reduction in capacity into New Zealand twice this year.
From July their total capacity into New Zealand will be down 21.5 percent when they reduce flights from both Auckland and Christchurch to Singapore.
Malaysian Airlines have cut their capacity to New Zealand for the Northern summer season by 15 percent.
They are all redeploying that capacity elsewhere around the globe, away from our country.
And against this background, what is Air New Zealand doing?
Despite Inraftil and Wellington Airport’s valiant attempts to try and convince New Zealanders that I’m hell bent on shrinking this airline, we’re actually in the midst of the largest capacity expansion ever attempted in Air New Zealand’s history.
We’re in the middle of a huge $2 billion investment programme to position Air New Zealand with a world class product.
We are growing seating capacity into this country… by 26 percent on our long haul fleet alone next year.
New planes . . . the 777 . . . the Q300 . . . the A320 and new world class interiors for our long haul fleet.
We’ve launched new routes to Adelaide, San Francisco, Shanghai, a second daily service to London.
We are continuing to invest $80 million offshore every year promoting New Zealand as a destination, and at least another $50 million each year onshore to drive domestic traffic.
And we spend millions each year across the country in philanthropy and sponsorship.
The sole reason for us investing all this money, is to grow this airline and to grow travel on routes to/from and within New Zealand . . . because that’s all we do.
We don’t fly anywhere else . . . we don’t have anywhere else to deploy our aircraft . . . we have to make New Zealand work.
Because we are in the middle of this massive period of investment, we cannot afford to have parts of the business that perform at anything less than world class.
Now, many of you here today understand the dynamics of running a business.
As business people you will also appreciate that continuing to pour money into part of an operation that is making large on-going losses is not only foolish, it is irresponsible.
No matter what the emotional attachment to a venture may be, you must make decisions concerning its future rationally.
Many of you will have seen the media reports over the last week about our application to code share with Qantas on the Tasman, including to and from Wellington, and you will have seen claims about its effects on the Wellington region.
The claims are highly emotive… in some cases pure political grandstanding and quite frankly naive.
But even if unpalatable, the facts by contrast are simple.
The facts:
If we review year on year performance as of last month, the total market passenger numbers on Wellington to Australia sectors have declined by approximately 4 percent.
They are not increasing, as one commentator suggested earlier this week.
Air New Zealand itself operates an airline on the Tasman that loses tens of millions of dollars a year and several million dollars worth of that loss each year is on flights out of Wellington.
Our Wellington flights are only 66 percent full Trans-Tasman; by comparison on the rest of the international network where our flights are on average 74 percent full.
What that means in simple terms is that on average there are around 50 empty seats on each 146 seat Air New Zealand A320 flying into, or out of Wellington trans-Tasman.
Every day.
In fact the economics on the Tasman at the moment are so bad that Pacific Blue and Freedom tried to operate here and both left routes because they simply couldn’t make any money.
Emirates never even started.
One of the main reasons airlines can’t make any money out of Wellington is the amount that we are charged in landing fees and operating costs by Wellington airport.
To make an international turnaround of an A320 out of Wellington costs around 19 percent more than Auckland and 27 percent more than Christchurch.
Even their parking is pricey, it costs around the same to park your car at Wellington airport for two hours in New Zealand dollars as it does to feed a parking meter for two hours in central London!
Wellington is one of the most expensive airports in the world to operate from.
But the owners of the Airport seem to think it is better to continue making excessive profits from such charges rather than work with airlines to try grow traffic into this market.
Of course from the Airport’s perspective, as you’ve seen from their spin of recent weeks, all of Wellington woes are caused by the airlines.
And it’s not just the airports.
If I look at the hotels current statistics, Wellington Hotels are currently the most expensive in the country, and they enjoy occupancy rates of 84 percent.
84 percent makes our 66 percent look very dismal.
No wonder we’re losing money!
What have we tried to do about it?
We have spent a lot of time trying to reverse these losses to get these Trans-Tasman routes to break-even, and eventually profit.
We’ve introduced the A320, which as a more efficient aircraft and saves us 15 percent in operating costs on these routes.
We have just begun to merge the flying of our Freedom and Air New Zealand A320 fleets into one operating company, to gain further efficiencies.
We’ve also invested a large amount in extra marketing to grow traffic to this region, despite uninformed claims that we need to improve our marketing of Wellington as a destination.
In fact, Wellington’s regional tourism operator receives nearly five times the funding of its nearest competitor, by far the lions share of money we allocate to these organisations.
What have we done for Wellington in the past?
We have long term tourism and community partnerships in this region that we will not simply walk away from.
We sponsor the Montana World of Wearable Art, The Lord of the Rings Exhibition at Te Papa, The New Zealand International Rugby Sevens, in fact our combined spend on these events alone is in excess of half a million dollars.
In October this year, we will bring an event to Wellington that will generate an estimated $10 million of direct economic benefit to your region, the 16th Annual Golden Oldies Rugby festival with 4500 players from 15 countries.
Over the last five years Air New Zealand has grown Wellington Domestic customer numbers by 39 percent off the back of a 25 percent capacity increase.
And we’ve grown Tasman International customers out of Wellington 11 percent off the back of a 23 percent capacity increase.
The Tasman problems won’t go away
But Wellington trans-Tasman problems won’t go away.
Despite our efforts to cut costs, improve our efficiency, and focus on our marketing, as I said earlier, we are still faced with Trans-Tasman routes into and out of Wellington that are losing us several million dollars a year.
Aggregating the losses we will have made by the end of this financial year, Air New Zealand will have lost a total of at least $35 million on these Wellington routes since 2003.
And the problems aren’t limited to the passenger side of the operation.
Just 21 percent of the available belly space in our A320’s into and out of Wellington trans-Tasman is currently filled with freight.
Freight forwarders are currently roading goods to Auckland for consolidation before flying them to Australia.
What are the options now?
Our choices in a situation like this are limited.
We can pull out of the market all together and that is simply not a preferred option given that the Tasman represents 20 percent of all revenue generated by Air New Zealand; it is crucial to the group.
We can reduce our services; not something I want to do due to the broader network implications, but will if it becomes necessary.
We can put our fares up, which is also not a preferred option as it makes us uncompetitive.
Or there is a fourth option.
That option is to reduce costs further and the best way to do this is using a code share which enables us to continue to offer our customers a rich schedule.
But it requires that we accept that a part of this schedule will be operated by another carrier.
What does a code share mean for me?
So let me quickly explain how a code share would affect you.
A code share is actually quite simple;
The reason we have codeshare arrangements is that they enable us to offer our customers a better depth and breadth of schedule that we could offer by solely using our own aircraft.
We operate multiple code shares already around the world with 11 other airlines – airlines such as Singapore Airlines, United Airlines and Japan Airlines to name a few.
With our Tasman proposal - when booking a flight, you will be given an Air New Zealand flight number and you will be told at the time of booking whether Air New Zealand or Qantas will be operating the flight… that is a requirement mandated by the International Air Transport Association.
If you are a corporate or business traveller, it’s likely your travel policy ties you to booking with one particular airline.
More than 30 percent of Air New Zealand’s travel out of Wellington to Melbourne and Sydney is transacted via our corporate travelcard.
Under the code share you would have access to all flights operated by both Qantas and Air New Zealand on the Tasman.
This means in increase in Air NZ Tasman frequencies from 134 a week to 218 a week under the code share, operated by Air NZ and Qantas.
Importantly if you are a member of our Airpoints scheme – you will earn Airpoints Dollars on all these flights, if you book with Air New Zealand.
When you check in at the Air New Zealand counter, you are given an Air New Zealand flight number and boarding pass. If you have access to our lounge facilities you will be able to utilise the Air New Zealand lounges.
You then fly on board an Air New Zealand or a Qantas jet, depending who is operating that service.
What would it mean for schedules?
But most importantly, there are benefits for schedules.
First Wellington - Sydney, an important business and corporate route.
Under the current schedules, Qantas and Air New Zealand depart within half an hour of each other either side of 0630 and at 1530 some days of the week.
Under the code share there would be departures at 0650, 1310 and 1530, plus at times of peak demand on Friday and Sunday, an extra flight at 1700. This gives you much more flexibility to complete a day business trip to Sydney.
Our modelling shows each aircraft will still depart with 35 to 40 seats empty on average, still plenty of spare capacity to get a seat.
Air New Zealand will still operate 9 A320 services a week on this route.
Next, Wellington - Melbourne, a mixed business and leisure route.
Currently departures are clustered around 0600 with one in the afternoon four times a week.
Under the code share you can do a same day return business trip every business day, and on a Sunday.
To allow the airlines to most effectively utilise our fleets means Qantas will operate this route.
And finally, Wellington - Brisbane, primarily a leisure route.
Again, to ensure the most effective utilisation of the fleet, Qantas will operate the aircraft on this route, with newer 737-400 aircraft.
Under the codeshare the flights will leave in the morning to allow a full business day or start to your holiday in Brisbane.
One of the questions I have been asked is why is Qantas operating so many of these services.
Across the entire Tasman network, if you look at the combined capacity of Qantas, Jetstar, Air New Zealand and Freedom – Qantas will operate 47 percent and Air New Zealand will operate 53 percent.
The simple objective of the codeshare is to reduce the number of aircraft required to operate the schedule and at the same time, enhance the schedule through removing wingtip to wingtip flying.
This more optimised allocation of our aircraft enables us to remove two aircraft from the fleet.
This allows the airline to make significant cost savings and in turn the lower cost base allows us the opportunity to sustain lower fares!
I have more questions!
Many of you will have questions you are dying to ask.
First of all, won’t there be a decrease in the number of seats that are available?
Yes, there will, by less than three percent; we are reducing the number of empty seats on the Tasman, not the number of full seats.
But you don’t have to try and figure out whether to believe Wellington airport’s assessment of 10 percent.
The real issue is how many empty seats will still be flying backwards and forwards across the Tasman if this code share proceeds.
Don’t forget, there is already a massive oversupply of seating capacity on the Tasman; remember, all our flights are only two thirds full.
The greatest destroyer of value in the airline industry is over capacity.
In fact Qantas and Air New Zealand combined will be flying 335,000 seats per year out of Wellington, when current demand is only for around 249,000.
That’s a 74 percent load factor, compared with Wellington hotels occupancy rate of 84 percent in March.
You will not miss out on getting a seat, and you can rest assured if the demand for seats looks like its exceeding supply, we will put more capacity into the market.
That’s what airlines do to grow.
What guarantee do you have that we won’t raise prices?
Let me assure you, the airline business is brutally competitive, with very few barriers to entry in New Zealand.
We have one of the most de-regulated airline industries in the world.
If there is even a hint of the code share partners raising prices beyond what is an acceptable level, other airlines will be back in here like a shot, which will promptly drive prices back down again.
We have already invested heavily in the Wellington region, but in the face of these ongoing losses, I am not prepared to invest extra funds and lose even more - it would be irresponsible of me to do so, when I can create a business model that works!
We have designed the code share schedules to maximise the use of the existing A320 fleet, to reduce cost, but most importantly to create a convenient schedule that allows you flexibility to plan trans-Tasman trips.
Why can’t Air New Zealand just wear several million dollars a year of loss on the Tasman out of Wellington, after all Wellington is a crucial business and political centre?
Air New Zealand is a publicly listed company – I like many other shareholders, have a significant portion of my life savings invested in this airline… in other words, I have some skin in the game too.
While we are very committed to Wellington and we hear the voices of many who make great profits out of the passengers we fly to and from Wellington, it is unrealistic to expect Air New Zealand and its 30,000 shareholders to shoulder the burden of all the risk, and wear all the financial losses.
This is a tough industry and loyalty is fickle - we have significant competitive threats.
New Zealanders are quick to fly on our competitors be they Qantas, Emirates, Pacific Blue, Thai, Cathay Pacific, Malaysian and Singapore Airlines if we are not up to scratch, or don’t deliver competitive prices.
As a consequence of this competition, record jet fuel prices, the depreciation of the New Zealand dollar and flat demand, the market is projecting that our profit this year will be half that of last year.
Faced with such challenges we cannot afford to subsidise routes that continue to make on going losses.
As the CEO of a publicly listed company, I am expected to ensure the viability of the business and deliver a return to shareholders who have invested in our company.
I will only do that by operating a healthy, vibrant and growing airline that offers New Zealanders and travellers to New Zealand a world class experience.
We will not let our Tasman losses continue
We appreciate the loyalty that many of you have shown to Air New Zealand in your expressions of concern over the code share proposal.
We are well aware of the passionate pride that many of you feel in this region, and the considerable business successes many of you have already enjoyed, be it in the world class film industry facilities that are drawing work here, the growing viticulture industry in Martinborough, or the increasing recognition of national cultural treasures like Te Papa.
We share your desire to grow tourism and business traffic to your region, and with a degree of self interest too, because we benefit if this happens as well.
Air New Zealand will still maintain a highly visible presence in the capital, with its main trunk domestic jets and regional airlines continuing to operate here, and flights to Sydney 9 times a week.
But it is clear that our Wellington Trans-Tasman routes in their present form are not viable and that the alternatives to remedy them are few.
A code share is the viable option.
What we need to do is find a business model that is viable, so that we can establish a solid and robust economic foundation going forward.
Air New Zealand believes a code share is the best option to address the continued losses that we are making on our trans Tasman routes out of Wellington, and on the Tasman as a whole.
It will offer a better schedule spread of flights, price stability for you as customers, and onward access to further destinations throughout Australia.
The Tasman is a critical market for Air New Zealand which must return to breakeven, and we will then have a business we can continue to grow.