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CEO Interview - Making a Noise

Rob Fyfe, CEO, Air New Zealand

Air New Zealand boss Rob Fyfe says the carrier’s unusual approach is allowing it to stand out from the crowd

How will you take advantage of the boom in Asia-Pacific travel?

As it stands our strongest markets are Australia, the United Kingdom, the United States, and Japan. The United Kingdom and the United States are very steady but we’re seeing a lot of growth from the Asia-Pacific region; not only India and China but places such as Vietnam, too. So there is a definite shift eastwards in our traffic, which is in line with the industry trend.

The challenge for us is how to make the most of this potential. Everything, from the mix of cabin classes to the marketing, has to be examined. You can’t have a homogenous brand in such a diverse region. You have to think a lot harder about creating visibility. Currently, a lot of our passengers are simply showing a natural preference for their home carrier, so we have to find a way to stand out in other markets.

Will the delay in Air New Zealand’s Boeing 787 order limit your ability to exploit the growth in regional traffic?

The 787 delay is having an enormous impact on us. For me, it is a far greater concern than the oil price. High oil prices have an effect on every carrier and we’re all used to dealing with them. Plus, you can look up the price at any time and make arrangements accordingly.

But the lack of clarity we have had over the 787, considering it is such a huge investment, has made it very difficult to make decisions on our future strategy. By now, we should be running a fleet of Boeing 777s and 787s. Instead, we have all sorts, including 767s and 747s. We’re doing well but imagine what we would be achieving if we had the fleet we expected to have. The older aircraft are far less efficient and we’ve even had to refurbish some, which doesn’t come cheap.

We don’t expect to have the 787 until 2013 now. That’s three years behind schedule.

Your work on the 787 has led to some innovative ideas in cabin design and the passenger experience though.

Our new interiors were developed with the 787 in mind. One of the most appealing things about the aircraft is that it will have a completely different feel for the passenger, with higher humidity and larger windows. It should make for a whole new flying experience.

But when we looked at what was on offer for the interior layout, we were very disappointed. Nothing seemed to reflect this leap forward. It was like buying a new house and having to fill it with old, worn-out furniture. It soon became clear that if we were going to do something innovative we would have to do it ourselves because the mainstream companies were all very conservative. It was a daunting prospect because we didn’t have any experience in developing the product in this way, but actually once we started work, the ideas began to flow. Some of these ideas didn’t pan out but others are now setting new standards in the industry.

The obvious one is the Skycouch that allows passengers to lie down in economy. When we were throwing around ideas about what we could do, I knew that lying down in economy was high on the customer wish list. But it had to be done within the same footprint if we were to keep the same cost base. We were told it was impossible but ultimately we found a very simple solution.

The seat is only part of the overall experience, though. For example, passengers can now order food and drink from a seat‑back menu. Again, it’s a very simple idea but it makes an enormous difference to the efficiency of the cabin crew, and the time between asking for a drink and getting one. And there’s plenty more. Our bathroom wallpaper features designs such as bookshelves and even someone peering in through a porthole. Some of our galleys have been redesigned to look like wine cellars, where passengers can spend a few minutes tasting the wines on offer. It’s quirky and serves two purposes. It’s a way of creating a noise, making people think, “wow, this is different” from the moment they step on board.

It is proving very effective already, especially in those markets where we’re less known. And it’s also a way of better serving our customers. On average our flights are longer than any other airline so we need to do everything possible to make passengers feel comfortable.

What is the rationale behind your 14.9% stake in Virgin Australia?

Essentially it’s a way of competing with Qantas in a very important market for us. It started out as a joint venture, meaning an Air New Zealand customer could book with us and fly, for example, from New Zealand’s South Island to Darwin in Northern Australia.

It was very successful and we realized how important the Australian market had become to us. We didn’t want to put it at risk and there was a possibility that an investor in Virgin Australia would be hostile. So we decided to make the investment as a way of solidifying the relationship. It ensures we keep our foot in the door of the Australian market.

Presumably Star Alliance is equally important to your future strategy?

Let’s be realistic. We are a not a hub; we are at the end of the line, geographically speaking. Some of the routes we fly simply would not be viable without the traffic being fed in by our Star Alliance partners.
Of course, being a member affects all parts of your strategy. There are plenty of standards to which the airline has to adhere—from technology to the lounge. We have to be in alignment with all the other members and that comes at a cost. But we did a straightforward cost-benefit analysis and it was clear we would be a lot better off in the alliance.

Is consolidation the only path to sustainable profitability?

I don’t think it’s the only way but it’s obviously very important. It gives an airline a way to grow its network without investing significant capital. Remember, aircraft are not cheap or easy to come by. Air New Zealand doesn’t have the ability to invest in aircraft on the same scale as other carriers and that puts us at a disadvantage. Consolidation is one way of overcoming that handicap.

You’ve been very proactive on environmental issues. Where does the industry go from here if it is to achieve its targets?

Air New Zealand was one of the first carriers to really embrace environmental issues. We have always accepted our responsibility to mitigate our environmental impact as much as possible. If you look back a few years we were a lone voice but since then IATA has been very proactive. It has really grabbed the issue and has been very constructive in its efforts. Individual airlines could not have achieved what we have achieved as an industry. We have made tremendous progress.

However, we’ve still got a long way to go and we won’t make substantive improvements without engaging with all aviation stakeholders, including suppliers and governments.

Biofuels are vital to our success and Air New Zealand would love to be the first airline to fly biofuel commercially once we have certification. It would only be window dressing, though. I would be much happier rolling my sleeves up and making sure that biofuels were an integral part of our fuel strategy in the near future.

Oil companies and governments have to step up and make that possible. We have to put more pressure on them.

You have the Rugby World Cup later in the year. Will it be good for business?

You would think it would be great for business and we hope it will be. But you shouldn’t underestimate the cost and hard work that’s involved. We’ve had a team working exclusively on the event since January 2010. We have to fly the teams, the officials, and all the support staff and equipment around the country. You can never delay a kick-off, so we have to put contingency plans in place in case of delays.

It’s not only what you see: the whole operation is mirrored to ensure there are no mistakes. Also, the Rugby World Cup lasts six weeks, which is two weeks more than the Soccer World Cup and four weeks longer than the Olympics.   

Will the airports play their part?

Absolutely. The infrastructure in New Zealand is very good and we’re working together to ensure the event is a success. Auckland is a good airport and gateway to the country, but its returns are disproportionately profitable compared with the rest of the value chain. That distortion is simply because they are a monopoly provider. Regulators need to create a better balance between risk and reward.

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