Air New Zealand – Bringing the World to Middle-Earth

Despite being based in a small, remote part of the world, Air New Zealand has driven operational and business model excellence to be rated the world's top airline for the past three years in a row.

Overview

Air New Zealand is the flag carrier of New Zealand, originally formed in 1940 as Tasman Empire Airways. Today the airline has a fleet of 105 aircraft, is a member of the Star Alliance network, with operations focused on the Pacific Rim and beyond, serving more than 50 airports globally with over 500 daily departures.

I selected Air New Zealand as an example of effectiveness at driving alignment between its operating and business models – because despite being based in a small, remote part of the world, the airline competes at a global level, and is highly regarded internationally.

Air New Zealand within the broader airline industry

The airline business is notorious for destroying value, and has historically seen significant misallocations of capital, even during stronger economic periods. Bucking this trend, Air New Zealand has instead been one of the more successful airlines in recent years. The airline’s net profit increased to NZ$327 million in the year ended June 30, 2015, up from NZ$263 million in the year prior, while in the same period, Air New Zealand’s revenue grew 6 percent to reach NZ$4.93 billion (In late 2015, NZ$1 was about US$0.66), and passenger sales growth of 6.8 percent. Boasting that Air New Zealand was “one of the top three airlines in the world,” CEO Chris Luxon observed that the company had an investment grade rating, and that only 10% (30 of 300) commercial airlines in the world covered their cost of capital, and that just seven airlines had an investment grade rating. Air New Zealand has also been rated the world’s top airline by AirlineRatings.com for three consecutive years.

Fundamentally, the business model of Air New Zealand is very similar to other commercial airlines – to carry passengers and cargo from location to location. Because of an effective operating model however, Air New Zealand fulfills this business model in a way that is profitable, unlike many other airlines, specifically through operational efficiency and tightly controlled marketing and branding processes.

Original author of photo: Mariordo (Mario Roberto Duran Ortiz)

Air New Zealand Boeing 777-300ER painted in ‘The Hobbit’ livery

ALIGNMENT OF OPERATING AND BUSINESS MODELS

Air New Zealand’s operational model provides a competitive advantage through a operational efficiency and effective management of innovation:

Modern, fuel-efficient fleet

The airline is focused on operating a young fleet of exclusively twin-engine aircraft, with an average age of only 8.7 years (or around 7 when considering solely the jet fleet). Air New Zealand were the launch customer for the Boeing 787-9 Dreamliner wide body jet, which has approximately 20% better fuel consumption than the 767 series aircraft it was designed to replace. Air New Zealand was also quick to replace their four-engined Boeing 747 fleet with slightly smaller, but more efficient 777-300ER twin-jets. Tactics such as these ensure that fuel costs, which are a significant portion of an airlines’ expenses, are minimized through the usage of the most fuel efficient assets available.

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Air New Zealand Boeing 787-9 Dreamliner

Managing innovation in promotion and marketing processes

Being a small airline on a global scale and being based in a country of only 4 million people, Air New Zealand has had to carve out a unique process of maintaining its brand identity in order to maintain a competitive advantage, . It does so through effective management of innovation in marketing, promotion and product.

Managing innovation in branding processes

As a consistent part of its operational model, Air New Zealand consistently leverages the most recognizable elements of New Zealand culture and national identity both to encourage foreign patrons, and to increase domestic loyalty. Multiple Air New Zealand aircraft have been branded with ‘Lord of the Rings’ or ‘Hobbit’ themes to take advantage of the popularity of the movie series, which were filmed in New Zealand. The airline has even gone so far as to establish themselves as the ‘Official Airline to Middle-Earth’ – driving visitors to New Zealand on their services. Multiple aircraft have also been branded in rugby or All Blacks (the New Zealand national rugby team) themes, leveraging domestic zeal for the sport, and the high global awareness of the All Blacks as a successful sporting franchise.

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Managing innovation in promotion processes and product

Air New Zealand also manages to capture an outsized voice and brand awareness than might be expected for an airline of its size through consistently delivering innovation in the form of unique in-flight videos and product offerings. Air New Zealand’s safety videos, which tend to be refreshed every few months, are typically quirky and idiosyncratic, featuring various celebrities (e.g. Bear Grylls, Betty White, Snoop Dogg, the cast of Men in Black) and crucially, often end up going viral, extending their reach beyond just those who have flown with the airline. Additionally, the company generated buzz with the introduction of the ‘Skycouch’ product on its Boeing 777 aircraft, which allows passengers to occupy a row of economy class seating and create a lie-down space, or ‘cuddle-class,’ which garnered attention around the world.

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Taken together, through a focus on a modern, fuel efficient fleet, and effective branding and product innovation, Air New Zealand manages to maintain a competitive advantage, and operate as a world-class airline, despite New Zealand’s geographic remoteness and small size.

 

Sources

Air New Zealand Corporate Site – http://www.airnewzealand.co.nz

http://www.airnewzealand.co.nz/fleet

http://www.staralliance.com/en/member-airline-details?airlineCode=NZ

McKinsey & Company, 2013 – Excellence in cost management, A new era for aerospace

Melih Madanoglu David Y. Chang Yung-Hui Chu, (2004),”Creating economic value in the US airline industry: are we missing the flight?”, International Journal of Contemporary Hospitality Management, Vol. 16 Iss 5 pp. 294 – 298

http://www.3news.co.nz/business/air-new-zealand-profits-expected-to-soar-2015082605#axzz3thbN5hTn

http://www.dailymail.co.uk/travel/travel_news/article-3340793/Air-New-Zealand-named-world-s-best-airline-year-row-British-Airways-drops-10.html

http://www.airnewzealand.co.nz/corporate-profile

http://www.airnewzealand.com/fleet

http://www.boeing.com/commercial/787/#/design-highlights/exceptional-value/lower-fuel-consumption/

http://www.stuff.co.nz/travel/news/61203514/last-air-nz-boeing-747400-flies-into-history

http://www.avjobs.com/history/airline-economics.asp

http://www.airnewzealand.com/airline-to-middle-earth

http://www.scout.co.nz/Air-NZ-named-worlds-best-airline-again/tabid/511/articleID/10627/Default.aspx

https://www.youtube.com/user/airnewzealand

http://www.telegraph.co.uk/travel/travelnews/8220840/Air-New-Zealand-launches-cuddle-class-seating.html

http://www.xe.com/currencycharts/?from=NZD&to=USD

https://en.wikipedia.org/wiki/Air_New_Zealand#/media/File:London_12_2012_LHR_4836.JPG (photo credit: Mario Roberto Duran Ortiz)

Personal experience flying on Air New Zealand

Photo sources:

  • Wikimedia Commons (photo credit: Mario Roberto Duran Ortiz – 777-300ER at LHR)
  • Wikimedia Commons (photo credit: Darren Koch – 787-9 on approach)
  • JAG wordpress blog (screenshot – airline of middle earth)
  • Screenshot of Air New Zealand Youtube page

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2 thoughts on “Air New Zealand – Bringing the World to Middle-Earth

  1. This post is cool because it is about a unique company that I have never previously knew anything about in an industry where everyone else seems to be doing the same things. It seems like their position as a small airline in a remote place has forced them to be innovative and efficient. I wonder why more airlines do not take advantage of the more fuel efficient planes given the volatility and high costs of fuel. I like how they have capitalized on their unique physical location making it into an asset instead of a challenge by turning it into a part of their identity. Spreading the sense of pride for the location brings awareness to the brand itself and possibly attracts the attention of travelers who have not previously been to NZ making them want to travel there. Branding the planes with more than just their logo seems like another seemingly obvious way to draw attention to the planes while parked among so many other planes at airports world wide, yet it is not something that I have noticed other airlines doing, perhaps due to the fact that they do not feel the need to be innovative given their size and perceived brand recognition in large markets.

  2. Really interesting post, Ollie! I hadn’t known just how popular / well-regarded Air New Zealand is until I read your intro – and then I had to know more about how they do it! I agree that their branding is very strong – from “The Hobbit” themed planes for the international audiences to rugby themed planes for the domestic market – very smart to appeal to both. I also looked up the “skycouches” that you mentioned and they seem wonderful – can definitely understand how their airplanes would be rated so highly, as they’ve taken significant steps towards making an otherwise uncomfortable process more enjoyable. Can’t wait to take an Air New Zealand flight to come visit you in the near future!

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