Barbarians at the gates

The battle, which is into its 22nd year, started when the New Zealand government relaxed the country’s aviation laws to allow foreign owned competitors to take a 50 per cent stake in a domestic airline.

In 1987 Ansett New Zealand started operations with a fleet of four 737-100s.

The airline was a combination of Ansett Australia and New Zealand companies Brierley Investments (27. 5 per cent) and Newmans (22. 5 per cent) which owned the unprofitable Newmans Air.

That airline formed the basis of the new operation which operated the 737s between Auckland, Wellington and Christchurch, while the ex Newmans Air Dash 7s were used on tourist routes to Mount Cook, Rotorua and Queenstown.

Ansett replicated in New Zealand its Australian full service model, opening luxurious lounges and adding a host of other touches that added nothing but layers of cost.

At its zenith at the end of 2000 the fleet had grown to eight BAe 146s, while the Dash 7s had been replaced with five Dash 8s.

However, along the journey when Air New Zealand took 50 per cent of Ansett in 1996, the Ansett New Zealand unit had to be spun off. It was picked up initially by News Corporation and in 2000 was sold off to a group of New Zealand investors under the name of Tasman Pacific Airlines, which operated under a Qantas franchise until it collapsed in April 2001.

Quickly filing the void, Qantas launched its subsidiary Jetconnect based in Auckland to operate both trans-Tasman flights and domestic routes in New Zealand. Services were launched connecting Auckland, Wellington, Rotorua, Christchurch and Queenstown with 737-300s and -400s.

Next to enter the fray was Virgin Blue, which had set up its Pacific Blue operation at Christchurch in 2003, before launching trans-Tasman operations in January 2004.

Domestic operations with 737-800s kicked off in November 2007 with services linking Auckland, Wellington and Christchurch and later Dunedin.

Most recently, and significantly, the Qantas Group on June 10 this year replaced its Jetconnect operated Qantas branded flights with Jetstar A320 services. With that, battle was truly joined.

Market size

New Zealand’s population of 4. 4 million means it has a relatively small domestic airline market, which remains dominated by Air New Zealand. According to the airline’s general manager domestic airline John Whittaker the airline carries 7. 8 million domestic passengers per annum, with analysts saying Jetstar is carrying the equivalent of near one million and Pacific Blue near 900,000.

Whittaker says Air New Zealand’s marketshare is stable in the face of the Australian invasion, while analysts say Pacific Blue appear to be losing share to Jetstar.

“Of the Air New Zealand share approximately 4. 5 million passengers are on routes that compete with Pacific Blue and Jetstar. ” Air New Zealand’s domestic market uplift is dominated by three routes: Auckland- Wellington, Auckland-Christchurch and Christchurch-Wellington. These routes are more than 70 per cent of its domestic traffic.

And while competitors have come and gone Air New Zealand is itself a vastlydifferent airline to the one that first faced Ansett New Zealand in 1987, having being privatised in 1989 and then reborn under majority government ownership after the collapse of Ansett in September 2001.

The airline now has 16 737-300s mostly dedicated to domestic routes, while 11 ATR 72-500s operated by Mount Cook, 23 Q300s operated by Air Nelson, and 18 Beech 1900Ds with Eagle Airways cover 27 regional destinations under the Air New Zealand Link brand.

By December it is expected to announced a replacement for its 737-300 fleet, with the 737NG and A320 under evaluation.

Air New Zealand argues with plenty of conviction and credibility that it has the world’s best domestic airline offering with a host of firsts.

The airline has also reinvented the web experience with its ‘grab-a-seat’ website which averages 100,000 hits a day, has designed a loyalty scheme based around any seat and at any time which has now been copied by Virgin and Qantas, and set a world standard for the airport check-in experience.

“We have created a product and journey for our domestic customers that is unrivalled in the market,” says Whittaker.

Air New Zealand has made use of the latest technologies to streamline the boarding process with options such as email, mobile phone or a permanent unique RFID identifier.

For instance, passengers travelling without a bag have check-in performed at the completion of the booking. These customers now only need to ensure that they arrive at the aircraft gate as little as six minutes prior to departure, where gate scanners enable to them to gate check-in with a swipe of their personalised RFID chip or barcode and board the aircraft.

Kiosk, web check and SMS check are all superseded in one leap.

But all the technology in the world can’t help if the price isn’t right and the low fare market perception generated by the Virgin/ Pacific Blue and Jetstar PR machines is arguably some of the best in the world.

Nothing to hide

Air New Zealand has hit back with what are possibly the most watched airline TV advertising campaigns on YouTube called ‘Nothing to Hide’ and ‘Bare Essentials’.

The first campaign highlighted that Air New Zealand’s fares were inclusive with no added extras, and to demonstrate this a number of staff stripped down to g-strings and were body painted in their uniforms with CEO Rob Fyfe joining in as a baggage handler – a job he and his management team do once a month in real life, rotating with flight attendant, check-in agent and maintenance engineer roles.

That campaign was followed by Air New Zealand’s ‘Bare Essential’ inflight safety video with staff again wearing little more than body-paint. Combined, both campaigns and the bloopers have been seen by more than 10 million viewers on YouTube.

At the other end or the PR scale was Jetstar’s less than auspicious launch of NZ domestic services. In the first week of operation in June Jetstar’s flights were in disarray with more than half over an hour late, requiring a rejigging of the schedule.

Air New Zealand, in some cheeky showmanship, offered NZ$50 fares to disgruntled Jetstar passengers and those who had missed a Jetstar flight because of its strict 30 minute check-in condition. “Air New Zealand Steps in as Jetstar Customers Continue to Suffer,” read the title of Air New Zealand’s June 23 press release.

Jetstar’s Buchanan accused Air New Zealand of staging a “dirty tricks” campaign by circulating unsubstantiated rumours about the airline’s pilots and its aircraft.

“We’ve experienced some tough competition before but we’ve never experienced someone trying to sabotage our business, or specifically go after us to try and discredit us,” the Jetstar CEO told media.

Air NZ’s short haul airline group general manager, Bruce Parton, rejected Buchanan’s claims. “Surely, Mr Buchanan doesn’t expect Kiwis to believe that we are responsible for his airline’s woes? We didn’t dream up his draconian check-in rules, his schedule that often cannot be met, his endless schedule changes and his decision to operate ill-equipped aircraft to Queenstown that cannot achieve the same punctuality as Air NZ’s fleet. ” Part of Jetstar’s problem was its operation into the tourist jewel of New Zealand – Queenstown. The airline’s A320s are not yet RNP equipped and its daily Auckland- Queenstown-Christchurch-Queenstown- Auckland service has sometimes run foul of Queenstown’s fickle weather.

Air New Zealand’s 737-300s and A320s and Qantas’s 737-800s are all RNP equipped for Queenstown ops.

We’re sorry

The network fiasco prompted Jetstar on July 9 to apologise to customers.

Buchanan told media, “We’ve definitely had our share of woes and there are some customers who haven’t had the best Jetstar experience, and for that we are apologetic,” he said.

Buchanan also noted that “Australians want a good onboard experience, while Kiwis want a good airport experience. ” The airline issued its Jetstar Customer Service Guarantee on July 9, effective through to October 9, that promised a NZ$50 voucher for any flight over an hour late to be used on the passenger’s next Jetstar flight.

Despite those difficulties, Jetstar says its New Zealand domestic services were profitable in July, the first full month of operations, whereas Qantas was losing NZ$750,000 a month on NZ routes. Load factor for July was over 80 per cent.

Still, it is evident that Jetstar and Pacific Blue face a big challenge in trying to dislodge Air New Zealand. In a recent TNS Conversa survey 25 per cent of New Zealanders said that they would only fly Air New Zealand, while 54 per cent said the airline was their preferred brand. Pacific Blue scored three and 16 per cent respectively and Jetstar a paltry one and 10 per cent.

A born-again Air New Zealand is well placed to continue its dominance in the land of the long white cloud, but the barbarians – with their bigger aircraft and claimed lower operating costs – are at the gate.