Air New Zealand and Virgin Australia to end trans-Tasman alliance

Heading in separate directions, Air New Zealand and Virgin Australia are ending their trans-Tasman alliance. (Seth Jaworski)
Heading in separate directions – Air New Zealand and Virgin Australia plan to go it alone on the Tasman. (Seth Jaworski)

Air New Zealand and Virgin Australia are ending their alliance on trans-Tasman routes.

The partnership is due to expire in October 2018 and both airlines said on Wednesday they would not seek an extension of the tie-up from the Australian Competition and Consumer Commission (ACCC).

Virgin Australia said in its statement it had “received notice that Air New Zealand intends to end the strategic alliance between Virgin Australia and Air New Zealand”.

The Australian carrier said the two carriers would work through arrangements regarding codeshare, scheduling, inflight offering, lounge access and frequent flyer program reciprocity to ensure minimal disruption to customers.

Air New Zealand chief revenue officer Cam Wallace said in a separate statement market dynamics on the Tasman had changed, adding that the time was right for each airline to “focus on its own objectives”.

The alliance was established seven years ago, and involved a metal-neutral, revenue-sharing joint-venture on on trans-Tasman routes, as well as reciprocal frequent flyer benefits.

At the time, both Air New Zealand and Virgin Australia spruiked consumers would benefit from a better choice of flights, improved connections and increased capacity on the Tasman.

Further, it would also allow the airlines to leverage efficiencies, opportunities and cost savings on trans-Tasman operations.

The ACCC approved the renewal of the alliance for five-year period through to October 31 2018 in 2013.

The 2013 authorisation noted Air New Zealand and Virgin Australia had the largest combined market share on Australia-New Zealand routes with 50.8 per cent of all seats flown on the Tasman. Air New Zealand held 35 per cent of all capacity, while Virgin Australia had 15.4 per cent.

The next largest grouping on trans-Tasman routes was the combined capacity share of Emirates, Jetstar and Qantas.

At the time, Air New Zealand held a 23 per cent of Virgin Australia shares. It has also twice supported the Australian carrier alongside other major shareholders Etihad Airways and Singapore Airlines through backing a capital raising or an unsecured loan facility.

The partnership between the pair deepened in 2014, when Air New Zealand, then with a 26 per cent shareholding, took a seat on the Virgin Australia board.

Air New Zealand and Virgin Australia cabin crew. (Air New Zealand/Virgin Australia)
Air New Zealand and Virgin Australia cabin crew. (Air New Zealand/Virgin Australia)

However, relations soured in March 2016 when Air New Zealand announced it planned to sell its stake in Virgin Australia and resigned from the board.

While the two airlines have been at pains to stress in the two years since Air New Zealand left the share registry that the alliance arrangements would be unchanged, there has been some winding back of cooperation, particularly in terms of frequent flyer benefits and earn and burn opportunities on each other’s networks.

Wallace noted Australia was the largest source of inbound visitors to New Zealand, adding that Air New Zealand had built up a significant presence in this market.

“This move will enable us to deliver a more consistent customer experience by using our own fleet and delivering an improved schedule, which we’ll provide more details about shortly,” Wallace said.

“We remain fully committed to our other alliance relationships and our overall global airline alliance strategy as a critical success factor in other markets.”

Air New Zealand has been aggressively targeting Australia in recent times and in 2016 launched a marketing campaign designed to capture a larger slice of Australians heading to North and South America.


VIDEO: An example of Air New Zealand’s “Better Way to Fly” campaign targeting Australians, as shown on the airline’s YouTube channel.

That push followed the start of nonstop flights to Houston and Buenos Aires from its Auckland hub in December 2015. And by the end of this year Air New Zealand plans to add Chicago to its North American network alongside Los Angeles, Houston, San Francisco and Vancouver.

For Virgin Australia, chief executive John Borghetti said the end of its tie-up with Air New Zealand on trans-Tasman route provided “opportunities for the Virgin Australia Group on the Tasman, including operating both the Virgin Australia and Tigerair Australia brands in the market”.

“The Virgin Australia Group has had a strong presence in the market since 2004 and we will continue to enhance our offering to suit both the business and leisure markets,” Borghetti said.

“Virgin Australia will continue its strong focus on providing competition and outstanding service on the Tasman, which remains an important part of our network and strategy as an airline group.”

In addition to their alliance on the Tasman, Virgin’s Boeing 737-800s and ATR 72 turboprops undergo maintenance checks at Air New Zealand’s engineering workshops in New Zealand. The pair also has a shared Boeing 777-300ER engine pool.

Currently, Virgin Australia’s low-cost-carrier unit Tigerair Australia has no international routes, having ended flights to Bali in February 2017 after reaching an impasse with Indonesian regulators over its operating permit to serve the popular tourist destination.

Any re-entry into the international market would allow Virgin Australia to offer both a full-service and LCC option for travellers on the Tasman, while at the same time help improve the utilisation of Tigerair Australia’s Airbus A320s and Boeing 737-800 fleet.

Comments

  1. Craigy says

    I guess we shouldn’t be surprised given the surprise announcement by Air New Zealand to sell down its shareholding in Virgin after some event in the board room where Air New Zealand by non confirmed reports tried to have Borghetti removed. I suspect Virgin will be better off out of the alliance.

    I do wonder however, with the limited aircraft Tiger have, what role they could play across the Tasman without reducing the number of aircraft on its domestic network. We await future announcements.

  2. Craigy says

    I guess we shouldn’t be surprised given the surprise announcement by Air New Zealand to sell down its shareholding in Virgin after some event in the board room where Air New Zealand by non confirmed reports tried to have Borghetti removed. I suspect Virgin will be better off out of the alliance.

    I do wonder however, with the limited aircraft Tiger have, what role they could play across the Tasman without reducing the number of aircraft on its domestic network. We await future announcements for the trans Tasman network

  3. Tony Pearce says

    Well it was never a happy marriage and probably makes sense. This reflects Air New Zealands long history of finding it difficult to work with Australian airlines. Interesting that Virgin has been unable to make real profit even in the time of lower fuel costs while Air New Zealand has made record profits. That Air New Zealand is thinking longterm looking at longhaul fleet replacement abd Virgin has stated they are not reflects two airlines in different stages of business cycles. The next few years will be interesting!

  4. k lane says

    Given VA inconsistent product – not disappointed / Air NZ success is typically in being nimble and understanding when the benefits of alliances wane and change needed.
    Added to this – United also have issues with VA – so future looks interesting for them given a good source feeder market will dry up

  5. Chris says

    According to my email from Air NZ, the marriage break up only affects Trans Tasman services only from 28 October 2018.

    Air NZ and VA are still in decisions about NZ and Australian domestic services but Air NZ has said that that Australian domestic flights still can be booked via Air NZ reservation system for VA domestic services and Air NZ Airpoints Gold Elite, Airpoints Elite and Koru Members still have access to VA domestic lounges and VA passengers still can book Air NZ domestic services and Velocity members still have access to Air NZ domestic and regional lounges through Air NZ/VA interline agreements after 27 October 2018.

    I suspect the break up is to do with Air NZ receiving first of its new A320/A321neo’s and the 12th B789 later this year.

  6. Lechuga says

    @Craigy my best guess would be wait and see for thee. There fleet is relatively small, but may grow once Virgin get their Max’s.

  7. Cory says

    Virgin will be cycling their older B737-800’s out of VA service into Tiger service when they start receiving the new B737-MAX units – this makes perfect sense where they can increase their market share of the flights between AU & NZ.

    With the withdrawal of Emirates A380’s from the route, this should hopefully see an increase in competition and a reduction in fares (in an ideal world at least)

  8. Nick says

    This is good, I feel Virgin Australia product damages air new Zealand’s reputation when people are unknowing that they are on a virgin service instead of air New Zealand

    Good work

  9. Deano969 says

    VA have taken more 330s for Hong Kong and they will be replaced by 737s
    They have let go their E jets
    And no more 737s to be delivered for a while

    So no spare frames to hand to Tiger for trans Tasman unless they either
    Reduce domestic capacity to free up frames
    Or
    Lease more to Alliance in F100s etc

    One would think the time to add capacity across the Tasman is just before Emirates pulls out

    Does VA have a plan to make this happen ?

  10. Jim Lufnan says

    For tiger to be in a position to offer regular trans Tasman service they need to dramatically increase their fleet size to around 30 frames which is very doable. Rumour has them taking some of the 737 max orders to be able to better compete with Jetstar who are running newer aircraft and who have no low cost competition on the tamsan.

  11. Simon says

    I disagree that Virgin Australia is an inferior product. Their 737s compared to AirNZ A320s have Business class and five rows of extra legroom EconomyX – neither of which AirNZ offer on their A320s.

    Virgin’s IFE app for tablets is the way of the future and is well used in Europe to assist in weight reduction – the app itself is made by Lufthansa.

    I agree that Virgin needs to build their own BNE International Velocity lounge ASAP…

  12. Simon says

    @Lechuga – Virgin Australia isn’t “small”… If you did your research, you would see that compared to AirNZ’s 30 x A320 fleet (with the first being over 15 years old now), Virgin actually has 82 x 737s… and if we include the VARA 2 x A320s, Tigerair 3 x 737s and 14 x A320s = Virgin Australia Group operate 101 narrowbody jets. And as…

  13. Simon says

    @cory said – Virgin Australia have very public plans to retain the older Virgin 737s and rebrand them under the Tigerair operation to allow for expansion as the 40 x 737MAXs arrive and replacing A320s. They will have a narrowbody operating fleet of 127 x 737/A320s by the end of the 737MAX deliveries. This, compared to AirNZ’s 30 x A320 fleet.

    The average fleet age of the AirNZ A320 is almost 8.5 years old, compared to the VA 737 fleet which is just over 7 years old. Virgin has still had brand new 737s delivered with the most recent arriving last month!

  14. Simon says

    @TonyPearce – Virgin Australia recently stated they have no plans to introduce a new type and are happy with the 777-300ER and A330-200 as they are revlatively new fleets. Their A330s are on average only 5 years old. AirNZ 777s average age is 9 years with some having been delivered in the early 2000s! Whereas Virgin’s 777s are just over 8 years old – and still retain the superior 3-3-3 seating layout than AirNZ ditched years ago as they want to stuff unknowingly stupid kiwis into their aircraft like sardines – and despite Virgin’s 777s being more spacious and roomy than AirNZ, they are still making profits on the LAX route. If you read the press release recently about fleet options for Virgin, they are certainly not ruling it out, but with relatively young fleets, it doesn’t make sense to replace them. You will note that they are also looking to expand their A330 operation and rumours are online that their shareholders Etihad and Hong Kong Airlines / Hainan are about to provide additional capacity. I wouldn’t be surprised if their A330s get used on the Trans Tasman in the near future!

    @TonyPearce – regarding their profits, you can read their balance sheets on their website and it clearly shows that they have been making a profit, but have reinvested that profit into paying off debt and obtaining tax breaks. While I don’t agree with them getting into such debt in the first place, as a privately owned company, they have and are continuing to do exceptionally well.

  15. Chris says

    @Simon

    I wouldn’t call Air New Zealand’s passengers stupid kiwis, that’s just ignorance. It’s all well and good for Virgin to have tablets to stream to. Just maybe introduce charging points onto there 737 so people can actually watch there shows for the flight. Also Virgin’s 737 seats basically still feel like Virgin Blue seats, there rock hard and not comfortable at all, at least you can sit on the air New Zealand a320 seats without wanting the flight to be over whilst u enjoy watching tv from the screen at your head height

  16. Mal says

    @Simon

    Why the insulting of kiwis? Kiwis have a choice. They make their choices just like every other customer does. Are Australians even more stupid for flying Jetstar or Tiger? With even a tiny bit of research you’ll discover the traditional method of assessing seating is width and pitch. Your commentary and tone demeans your argument to that of someone with real ‘issues’,

    Air NZ are replacing all their trans Tasman A320’s. By 2019 I believe. Airlines do this you’ll find. They have an old fleet and then a new fleet. This is just part of the cycle. Air NZ A320s remain in great order from a pax point of view. Their seating is superior to my mind and my butt. I am Gold Elite and Platinum with these respective airlines so while my view is obviously a personal view, it is well informed.

  17. Richard Marsom says

    Meh. Wish they would leave lounge access alone and pay the difference for entries at FYE.
    Has been very convenient as both airlines don’t cover all my departure airports and normally I travel either or.
    It’s the passengers who lose… haha

  18. Al says

    Q: Who has more aircraft in their fleet?
    A: Air New Zealand (105 versus Virgin’s 101)

  19. Chris says

    Simon – Air NZ will be taking delivery first of their A320/A321neo’s later this year to replace the older A320ceo’s. Air NZ will be the first operator to use A320/A321neo’s on Trans Tasman and South Pacific routes. Also the 12th B789 will be delivered at the same time, freeing up a B772 for Trans Tasman services.

  20. Tony Pearce says

    @Simon

    Air New Zealands 777’s are older and yes those 10 across seats at the back do make it a bit crampt but you seem to have ommitted that they also have 11 787’s the oldest being 3 1/2 years old with three still to come . And now they’re looking at options for the older 777’s replacement.

    And what are Virgin doing regarding future longhaul replacement?

  21. Rocket says

    Air NZ ended their shareholding in Virgin Australia after allegedly demanding the resignation of it’s CEO not because of any reason other than VA’s inability to make a profit for 7 years. NZ had paid millions for their shareholding and had poured countless more millions in afterward in so-called ‘loans’ which were probably better termed ‘propping up incompetent management and losses’.
    Air NZ will be better off out of the alliance. From what I’ve heard they were almost impossible to deal with even when transferring passengers – with NZ being more likely allegedly to transfer disrupted passengers to Qantas rather than go through the mill of passengers being sent back and forth between VA and NZ because VA don’t want to accept standard industry processes.
    It makes one wonder what the future is for VA, with still no or little profit after billions poured in, a CEO who seems to keep getting bonuses regardless of performance and a dwindling list of shareholders – it’s probably destined to be a branch office of Singapore and Beijing and not much else which is quite sad as the country needs two strong airlines. Currently it has one.

  22. k lane says

    Simon given 10 abreast is common on most major airlines using 777 – British Airways next to join the club, perhaps the only stupid ones are execs at VA which hardly makes any ROI / deploys aircraft to routes with intense competition – LAX / Hong Kong * clearly going to spin a dollar there – Air NZ is wildly profitable alongside Qantas as they have a more dynamic understanding of route dynamics and commercial imperatives than VA

  23. Stu Scott says

    So no direct ZQN – BNE Flights for people in Wanaka and Queenstown anymore? , Id much rather fly ANZ but have been forced in to using Virgin for the past few years because of this , they do at least have Business on their 737s

  24. tom says

    NZ to add BNE/ZQN (it’s all been VA up til now). SO will VA reduced their BNE/ZQN flights ?

    Looks like BNE/DUD flights might be stuffed.

  25. Jeff Carswell says

    Good for Air New Zealand and passengers now no longer having to put up with substandard Virgin service. I, for one, have had to endure the poor Virgin inflight service across the Tasman connecting from an ANZ flight from LAX.

  26. Brian Doyle says

    “Oh” I can remember in 2001 a certain airline over the Tasman that totalling stuffed Ansett Australia. I was stuck at Melbourne Airport, not being able to fly home seeing all the poor Ansett staff crying i just can’t forget what they did. I will never forgive Air New Zealand for that and that is why I’ll never ever fly t, a hem. They had options with Ansett one was that Singapore Airlines wanted to take over Ansett but a big head, greed and fear of Qantas stopped all of that. My how the public have forgotten.

  27. Rocket says

    @ Brian Doyle

    Singapore were never going to ‘take over’ Ansett, they were going to own half only, with NZ owning the other half.

    Yes, they swung the axe but Ansett was destroyed over a period of years by its previous owners, stripping out the road transport and media assets, selling the DC-9s for their book value then o selling them via a tax haven for market value, lumbering the airline with a mixed fleet for the benefit of TNT in Europe, fitting engineer panels to a two person crew aircraft and lots of other bastardry that meant NZ ended up purchasing (stupidly without doing their homework) what amounted to a corporate mudguard – shiny on top with a lot of crap underneath.
    No matter who bought Ansett, they would have been faced with some sort of disaster. The real culprit is the Howard Government, refusing to invest in it and restructure it because “…the Commonwealth isn’t in the business of bailing out private companies…” or words to that effect (Howard, 2001) EXCEPT if the PM’s brother is on the board of said private company.

  28. Public Fact says

    @Brian Doyle
    “My how the public have forgotten”- My how the world has moved on. ANZ were sold a financial lemon which was going to collapse regardless. Moving 20 years into the future.
    There is so much yet to come on this around interline and connectivity within AU and NZ. , ANZ have announced new routes ZQN to BNE and increased service CHC-MEL-SYD.Widebody growth AKL-SYD-BNE-MEL .I read on here the number of people who want CBR-AKL, TSV-AKL, etc etc. So now this may be possible. Who Knows.
    Everyone has a choice on carrier. No Order
    1.Price
    2.Natioanlsim
    3.Seats
    4.Duration of Stopover
    Each and everyone decides

    Yes I’m a Kiwi

  29. Tony Pearce says

    Brian, I think the ‘stuffing’ of Ansett was a bit more complex than just Air New Zealand input. They were just the final nail in the coffin. This does raise the subject of how hard it is for the ‘second airline’ in countries like Australia and New Zealand over the years. Ansett was by all accounts a poorly run company and Virgin probably couldn’t believe it’s luck when it went under. Now 17 plus years later it seems very little has changed. In that time Air New Zealand has been bailed out by the New Zealand tax payer and QANTAS has had it’s problems, This is probably not an industry you would want to invest in if you looked at the airline failings globaly over the decades.

  30. Kieran says

    Air NZ a320/21neo order was changed last month converting 3 20s to 21s to now 6 a320neo and 7 a321neo.

  31. franz chong says

    the problems with the now defunct Ansett date back to way before Air NZ entered the picture. All they needed for the future fleet was a mix of 737’s,757’s and 767’s to fulfil the various capacity sizes when it was time to move on from the 727’s and DC9’s in the early eighties for mainline services.Not this Noahs ark much like Panam in the USA had which led to their demise.