Air NZ boss wants to keep flightpath
2014 looks set to be defining for Air New Zealand, with an upgraded fleet and strategic alliance with Singapore Airlines likely to ensure it's profits continue to soar. Christopher Luxon sat down with Josh Martin in Doha.
Like any leader worth his salt, Air New Zealand chief executive Christopher Luxon is swamped.
Not only did it take an 18-hour flight to Doha to secure an hour of his time, our makeshift interview spot hidden down a Ritz-Carlton hotel corridor is not concealed enough to stop the barrage of industry executives and aviation consultants from cutting in.
He admits the situation is a little more exaggerated than usual. In Doha for the annual gathering of the world's airline bosses, Luxon has more than a few fans.
They want to know how his airline has continued its winning streak of a decade of profits and dividends despite a global recession, high jet fuel prices and a shrinking network.
"These 240 airlines look at us because Air New Zealand is doing an exceptional job compared to almost all of them, whether its customer satisfaction, company culture, or commercial performance," Luxon says.
The left-of-centre advertising campaigns, a hallmark of previous chief executive Rob Fyfe's era, remain. The controversial Safety in Paradise in-flight safety video featuring Sports Illustrated bikini models has 5.2 million YouTube hits and lead to a 124 per cent increase in web bookings from the United States. The video followed the airline's joint marketing of The Hobbit film franchise, which Luxon says helped boost traffic from North America last year by 13 per cent.
Air New Zealand's smart-casual service has become part of the cabin crew's trademark, but Luxon has some serious numbers on the bottom line to back it up.
Air New Zealand is one of only three investment grade airlines worldwide and it made a $140 million profit in the half year to December 31, up 40 per cent for the year-on-year period.
Since the Government sold down its 73 per cent shareholding in the airline to 53 per cent late last year, the share price has climbed from $1.65 to $2.20.
By contrast, its rival Australian rival Qantas lost A$235m for the half year and is in the midst of a A$2 billion restructuring plan, with routes culled and 5000 job losses expected.
Luxon refuses to kick Qantas when it is down. But behind the usual answer of "not thinking about the competition", and "staying focused on our own strategy", some competitive ruthlessness is revealed.
Through a brimming smile, when asked if Air New Zealand and trans-Tasman alliance partner Virgin Australia will capitalise on the financial turmoil of their much bigger rival, he said: "Well that's the aim isn't it? We want to see Virgin keep growing its market share in Australia."
Air New Zealand owns about 25 per cent of Virgin Australia and is its largest single airline shareholder alongside Singapore Airlines and Etihad. Each will take a seat on Virgin's board next month.
Luxon says the airlines will not push for a retreat by Virgin from the fierce seat capacity battle with Qantas in the Australian domestic market.
"We think we'll just let that play out," he says, "but it's been a pretty tough fight for both airline groups."
Luxon is not kidding, being called on to pump another A$350 million along with Singapore Airlines and Etihad into Virgin Australia last year as it continued to spill red ink in a bruising capacity war with Qantas.
Virgin's "phenomenal turnaround" from a low-cost carrier to a full service threat is a contributing factor to Qantas' woes.
Luxon took over the company from Fyfe on January 1 last year, having first returned Air New Zealand's international division to profit, by focusing on the Pacific Rim network.
Fyfe and his predecessor Sir Ralph Norris are largely credited for making the airline take off financially, as well as infusing the company with its quirky, innovative streak.
Luxon, like Fyfe, was an industry outsider before joining the company in 2011.
His nearly 20 years at Unilever, where he rose to become president of Unilever Canada, had him selling soap, deodorant and shampoo.
He now says the "aviation bug" has well and truly bitten.
"It's a very addictive industry and very challenging economically.
"Of the industries I've worked in, this one certainly has the lowest margins so you have to work hard to get the economics right."
After his promotion to the top job, Luxon talked to as many previous Air New Zealand chief executives as he could, including Norman Geary who led the carrier for most of the 1980s.
He "bumps into them at functions", but it seems Luxon is no longer looking for a mentor to hold his hand.
"The key thing about a CEO is that you have your own view about where you want to take the company."
Luxon says he was under no illusions of the responsibility at the head of the national carrier, with its huge brand power, employee base, and impact on the economy.
"People care about this company in New Zealand and Air New Zealand can do a lot for this country, so there is still a huge expectation and pressure to do well."
After Unilever he could have worked anywhere but returned home for family reasons and also to be part of something other than just business-as-usual.
"I think my generation of 40-something year-old leaders really want to be leading companies that can make a big difference. Ones that are a lot bigger than just making money," he says.
Luxon says his strategy will be to accelerate growth, while balancing customer, commercial and cultural imperatives.
The "DNA of Air New Zealand" gives the company its competitive advantage and it comes down to its people, says Luxon.
"Most things about an airline can be copied, we all have similar aircraft, we all make route decisions, the one thing is the intangible DNA of the organisation, and it comes down to our people."
Could the airline's slick marketing and the boss championing of its staff and how it benefits the country create a chasm of difference between perception and reality?
After all, 250 engineering staff and more than 100 cabin crew lost their jobs last year, the latter after an ill-fated restructure labelled ‘Project Choice' which the airline ultimately backed away from.
Luxon admits the airline has failed in the past when it came to engaging unions as one of the country's largest private employers of a unionised workforce.
"We haven't done as good a job as we could have in collaborating with those people as partners in the business."
He has introduced a "high-performance education model" to work with union delegates on challenges Luxon predicts for the next five years.
"There will always be issues, with a staff of 11,000 people there will be some who are not happy, but you've got to step back and say: ‘Have we got more right than we've got wrong?' and yes, I think we've have".
The theme of collaboration under Luxon has been extended to the tourism industry, trade partners and regional New Zealand - three of the airline's toughest critics.
The airline's long-term strategy aligns with industry blueprints by the Tourism Industry Association and Auckland International Airport. Like them, it focuses on the Pacific Rim markets as the drivers of future growth.
Luxon has targeted ambitious 5 per cent per year growth for the next five years.
He says the airline has never had stronger commercial results, customer satisfaction and company culture concurrently.
"The plan recognises that I've inherited a business with strong foundations, but we want to be a great, not a good company".
Luxon says it would have been easy to coast on the rising inbound tourist numbers and the domestic market, of which it has the lion's share.
"Complacency is the enemy. In 10 or 15 years we want an Air New Zealand not just surviving, but thriving."
Although attention has been paid to the 787-9 deliveries, 2014 will also be a pivotal year for the airline, if Transport Minister Gerry Brownlee approves a revenue sharing partnership with Singapore Airlines. The deal will see Air New Zealand return to the South East Asian transit hub for the first time since 2006.
After cost-cutting and dropping unprofitable routes such as Hong Kong to London, and Auckland to Osaka, the return to Singapore shows Air New Zealand is back in growth mode, even if that growth is through partnerships.
More importantly, the alliance with Singapore Airlines will give Air New Zealand access to the booming middle-classes of India and Indonesia without having to fly its own planes on those routes.
"The best way to take advantage of the bigger numbers coming here from India and South East Asia, even Germany is through Singapore Airlines.
"They have sales teams over there actively selling New Zealand, which we could never match on our own," Luxon says.
The route would be profitable from day one and the airline has previously said it is likely to use similar partnerships for future network expansion.
Air New Zealand chief executive Christopher Luxon is elated to be finally receiving the first of 10 Boeing 787 Dreamliners next month after a four-year delay.
Air New Zealand is the launch customer for the stretched 787-9 version of the revolutionary long haul jet which symbolises the company moving up a gear.
Along with another two Boeing 777-300ERs and a refurbishment of the older 777-200ERs, Luxon says customers will finally be offered a similar product across most of the long haul fleet.
Luxon sees the new fleet as illustrative of the nexus between financial results, customer experience and company culture, which he says provides a "virtuous cycle" that will still be in place when he decides to leave.
"We couldn't be buying these new planes, refitting older ones or upgrading our lounges if we didn't have these larger profits," he says.
Josh Martin travelled to Doha courtesy of IATA.
Sunday Star Times