Air New Zealand Limited

views updated May 11 2018

Air New Zealand Limited

Quay Tower
29 Customs Street West
Auckland
New Zealand
Telephone: 64-9-366-2400
Toll Free: 0800-737-000
Fax: 64-9-336-2764
Web site: http://www.airnewzealand.com

Public Company
Incorporated: 1940 as Tasman Empire Airways Limited
Employees: 23,000
Sales: NZ$3.72 billion (2000)
Stock Exchanges: New Zealand Australian
Ticker Symbols: AIRVA; AIRVB
NAIC: 481111 Scheduled Passenger Air Transportation; 481112 Scheduled Freight Air Transportation; 488999 All Other Support Activities for Transportation; 56152 Tour Operators

Air New Zealand Limited (ANZ) is New Zealand’s largest airline. The acquisition of Ansett Holdings has made ANZ one of the 20 largest air carriers in the world. Marketing alliances with numerous airlines, including United Airlines, Lufthansa, and British Midland, bring it traffic from around the globe; ANZ carries approximately eight million passengers a year. In addition, the company operates subsidiaries involved in a range of businesses, including cargo services, travel agencies, terminal services, and engineering services.

Operated as a government-owned airline until the mid-1980s, Air New Zealand established itself as the dominant national carrier, although its profit record was spotty. After bottoming out in the early 1980s, Air New Zealand was privatized beginning in the mid-1980s; healthy sales and profit gains ensued and even accelerated after the company became fully private in 1989. ANZ took on considerable debt in acquiring Australia’s Ansett Holdings in the 1990s, and faces a well-funded and well-organized rival in Qantas.

Tasman Origins

Tasman Empire Airways Limited, the company that became Air New Zealand, was registered on April 26,1940, as a limited liability company in Wellington, the capital of New Zealand. Its first flight occurred just four days later.

New Zealand’s government originally owned 20 percent of the enterprise, while the remainder was held by regional airlines BOAC (38 percent) and Qantas (23 percent), and Union Airways of New Zealand (19 percent). The company started out as a specialty carrier, providing air service across the Tasman Sea (between New Zealand, Australia, and Tasmania) with “flying boats.”

F.M. Clarke was the first general manager of Tasman Empire Airways. However, it was Sir Geoffrey Roberts, who joined the company in 1946, who became known as the “Father of Air New Zealand.” Roberts served as general manager until 1958, and then as a director and chairman of the company during the 1960s and 1970s.

In 1953 the governments of New Zealand and Australia became the sole owners of Tasman Empire Airways, each with a 50 percent share. The New Zealand government bought out Australia’s half in 1961, though, and became the sole owner of the operation. In 1965 the name of the company was changed to Air New Zealand Limited to reflect its status as a national air service provider. Throughout the 1960s and 1970s, in fact, the government invested heavily to make Air New Zealand a leading airline in the South Pacific. The company expanded with destinations throughout the New Zealand/Australia region and South Pacific Islands, but also to other locales in Asia and the West. During that period, the company logged millions of miles flying over water and forged a worthy reputation in the global airline industry as a safe and competent carrier.

Air New Zealand benefited during the 1960s and 1970s from government ownership. Besides having easy access to investment capital, the airline enjoyed protection from competing carriers in its domestic market. Despite deep pockets and protected markets, however, Air New Zealand eventually began to suffer from limitations imposed by the vast bureaucracy that engulfed the enterprise. High operating costs and a stifling management environment were hurting the company’s performance. Intensifying the strain was the government decision to merge Air New Zealand and National Airways Corporation. The government had created National Airways in 1947, a few years after Tasman Empire was formed. That government-owned operation was initiated to provide domestic air service, as well as regional services to other South Pacific Islands. The two airlines were merged into a single entity called Air New Zealand (ANZ).

1980s Turnaround

The operations of National Airways burdened the resultant organization with even higher operating costs, such as big wages paid to union workers. The airline was losing money and, by the early 1980s, even the government recognized that something needed to be done to turn it around. To that end, in 1982 it brought in Norman Geary to serve as chief executive of the company and to whip the organization into shape. Geary succeeded Morrie Davis, who had been with Air New Zealand since the 1940s and had served as chief executive since 1975. Under Geary’s direction, ANZ’s financial performance began to improve. In fact, the company started posting profits in 1982 and continued to do so throughout the 1980s and into the early 1990s.

Geary was able to achieve gains at ANZ by reducing operating costs and boosting revenues. He accomplished that by convincing the government to back him up in key efforts, particularly related to labor negotiations, and by breathing new life into the company’s marketing strategy. Soon after taking the helm, for example, he launched a route from Auckland to Los Angeles to London. He also purchased a new fleet of Boeing 747s and initiated an effort to boost ANZ’s share of the Pacific tourist market. The government had sponsored studies that suggested that those moves would fail. Nevertheless, Geary was committed to the new strategy and was even able to persuade doubting bureaucrats to give him a chance.

As a result of Geary’s efforts, ANZ rapidly improved. The new route to London, for example, sold out quickly, and Geary’s efforts to boost profits from tourism paid off. Indeed, during the 1980s New Zealand became an increasingly popular destination for leisure travelers around the world. New routes, upgraded equipment, elimination of unnecessary overhead, and improved marketing helped the company to boost its number of passengers to more than four million annually by the mid-1980s. Meanwhile, operating profits rose to more than NZ$100 million. Geary was eventually credited with turning ANZ into an efficient, profitable carrier. In 1987, the last full year that Geary was in charge, ANZ’s revenues increased to about US$800 million and total passengers served climbed to about 4.7 million (about 3.3 million international passengers and 1.4 million domestic).

Geary departed in June 1988 and was succeeded by R. James Scott. Scott was brought in to usher ANZ into a new era of privatization. Indeed, New Zealand’s government had started privatizing much of the nation’s air transport system in the mid-1980s, including airports and air traffic control systems. It also started moving ANZ toward privatization and preparing to open the New Zealand market to competition. To that end, it allowed a new air carrier called Ansett New Zealand (renamed Qantas New Zealand in 2000) to begin operating in July 1987. From modest beginnings, the start-up expanded rapidly into other routes dominated by ANZ. It initially managed to snap up as much as 30 percent of the market in some of those routes and threatened to pose a formidable long-term challenge to ANZ’s domestic operations; some observers speculated that the government’s decision to allow Ansett to compete eventually played a role in Scott’s leaving ANZ.

Private and Public in the 1990s

ANZ completed its privatization in 1989. Its new owners included Australian rival Qantas, as well as Japan Air Lines and American Airlines. Those three companies owned 35 percent of the company, and Brierley, a New Zealand investment firm, controlled about 65 percent of the stock, much of which it had agreed to sell to the public. Thus, Air New Zealand was effectively free from government interference. With the domestic market increasingly open to competition and offering few growth opportunities, Scott planned to focus the newly private ANZ on international business. Tourism had been surging in New Zealand and surrounding areas, and Scott planned to boost the share of ANZ’s revenues attributable to international traffic from about 60 percent in 1988 to 90 percent by 1993.

Specifically, Scott wanted to turn ANZ into a “quality niche carrier” that dominated the markets and routes that it was most able to serve, rather than trying to compete with major international airlines in the most popular routes. ANZ’s financial performance and passenger volume declined in 1990 and 1991, primarily as a result of diminished international traffic during the global economic downturn. But management undertook a number of new initiatives that buoyed the company. For instance, ANZ reached marketing agreements with major airlines that strengthened its commitment to the North American and South Pacific market; for example, services were added or augmented in Dallas, Honolulu, Toronto, and Vancouver. Those agreements, according to Scott, represented ANZ’s intent to double in size by the year 2000.

Company Perspectives:

The Air New Zealand—Ansett Australia Group operates a competitive network serving key gateway airports of the Asia-Pacific region. The Group flies to more destinations in Australia, New Zealand and the South West Pacific than any other airline.

James McCrea replaced Scott as chief executive of ANZ in August 1991. McCrea had joined the airline in 1956, in the engineering division, and worked his way up to general manager of airline operations by 1982 and then to deputy chief executive in 1989. He worked closely with Scott to ensure that ANZ operated profitably and efficiently. As chief executive, McCrea continued to pursue many of his predecessor’s goals, although he reduced ANZ’s growth forecasts. Instead, he planned to steer ANZ on a course toward steady passenger growth and healthy profitability, largely by cultivating international tourism traffic. Importantly, the company began to promote what it termed “multidestinational regional tourism.” In other words, it focused on encouraging leisure travelers to fly ANZ into New Zealand or some other South Pacific destination, and then on to other locations along ANZ’s South Pacific network—Hawaii, Fiji, Tahiti, Western Samoa, the Cook Islands—during the same vacation.

ANZ prospered under new management during the early 1990s and into the mid-1990s. Passenger volume rose from about 4.8 million in 1991 to 6.4 million in 1995. During the same period, sales rose 30 percent, approaching the US$1.5 billion mark for the fiscal year ended June 1995. More importantly, operating profits rebounded and vaulted to roughly US$150 million annually by 1995. The gains were primarily the result of increased leisure traffic, particularly in Asia, and new programs designed to take advantage of tourism growth. In 1992, for example, the Australian government allowed ANZ to establish a minor hub in Brisbane, feeding traffic from Asian gateways to New Zealand. In 1993 ANZ initiated service to South Korea. In 1994 and 1995, moreover, ANZ boosted the number of direct flights from Los Angeles to Sydney to five per week.

On a typical weekday in 1995, ANZ made 528 flights between 60 airports and 19 countries. In addition to its thriving airline business, ANZ managed to rack up profit gains from its diverse assemblage of subsidiaries and operating units. Among the most important of those entities was Air New Zealand Engineering Services, which alone generated about US$176 million in sales for 1994. Additional profit centers included a pilot training center, travel agency, information systems services, and catering and cargo operations. Other operations included ANZ’s domestic airline operations, which continued to face challenges prompted by deregulation and increased competition. For the mid- and late 1990s, ANZ management was planning to continue building its international leisure business with a focus on Asia, as well as to pursue its strategy of multidestinational regional tourism.

New Alliances in the Late 1990s

In May 1996, ANZ unleashed an A$45 million “Pacific Wave” marketing campaign, designed to position the airline as a leading Pacific Rim carrier. The next month, it was due to acquire a 50 percent stake in Ansett Australia Holdings. This acquisition seemed to alienate Qantas, which sold its 19.4 percent stake in Air New Zealand for NZ$426 million (A$373 million) in March 1997. A couple of months later, ANZ took full ownership of its Jetset Travel venture, which had lost millions in the hands of its former management.

Strategic alliances helped supply ANZ with traffic during the Asian financial crisis. However, ANZ was still forced to cut back its flights in Korea, a particularly hard-hit area, in early 1998. The crisis allowed the carrier to step up delivery of several new Boeing 737s as other buyers reneged on purchase agreements.

By this time, Singapore Airlines (SIA) had been making overtures towards an alliance with both ANZ and Ansett. In early 1999, ANZ and SIA struggled for control of a half interest in Ansett. During this time, Brierley increased its ownership in ANZ to 47 percent, near the 49 percent limit for foreign ownership (whereas foreign airlines could together hold no more than 35 percent). Brierley had moved its headquarters from Wellington to Singapore (and changed its country of incorporation to Bermuda), transferring some of its ANZ shares to local subsidiaries, which had local and independent directors on their corporate boards, making them sufficiently “ring-fenced” for the satisfaction of the New Zealand government. However, it did raise some controversy; Alliance party leader Jim Anderton maintained “ANZ should be renamed Air Asia because it is no longer a New Zealand airline in any meaningful sense.”

In February 2000, ANZ agreed to pay News Ltd. A$580 million plus 10.5 percent of its shares for the remaining half of Ansett Holdings. The impending arrival of Richard Branson’s Virgin Express discount airline in the Australasian skies sped up the deal. Singapore Airlines had bought a 49 percent interest in Virgin Atlantic the year before. There had also been a management buyout offer on the table for Ansett. Yet another factor precipitating the sale was the appointment of Brierley’s new CEO, Greg Terry, who felt his firm should begin to divest its ANZ holdings. Together, ANZ and Ansett had A$6.7 billion in assets and 24>000 employees, and likely much room for combining operations between them. ANZ management anticipated saving NZ$250 to NZ$350 million annually as a result of the merger.

SIA then aimed to ultimately increase its ownership of ANZ from eight percent to 40 percent and to gain board control of the airline. New Zealand’s prime minister, Helen Clark, opposed the sale since it would have the appearance of giving control of ANZ to the government of Singapore (which owned 54 percent of SIA). Brierley took its 47 percent stake in ANZ off the market when ANZ’s board discovered Qantas was also interested in it.

SIA bought an initial 8.4 percent stake in ANZ in April 2000 for NZ$140 million (A$116 million). The New Zealand government soon cleared SIA to increase its shareholdings to 25 percent, the maximum any single foreign airline was allowed to hold.

Key Dates:

1940:: Tasman Empire Airways connects New Zealand and Australia with “flying boats.”
1953:: Governments of New Zealand and Australia become sole owners of Tasman.
1961:: The New Zealand government buys out Australia’s share.
1965:: Air New Zealand (ANZ) name is adopted.
1982:: Norman Geary is hired to turn around ANZ.
1989:: ANZ is privatized.
1996:: ANZ acquires 50 percent of regional competitor Ansett.
2000:: Remainder of Ansett is acquired; Singapore Airlines invests in ANZ.

ANZ CEO Jim McCrea resigned in July 2000, a sign of SIA’s growing control over the airline. By one count, annual profits had risen by a third to NZ$177.9 million (A$134.7 million) due to rising passenger counts. However, ANZ reported a NZ$600 million loss for the 1999/2000 fiscal year due to a change to international accounting standards. ANZ continued to show an interest in regional air services in Australia, bidding A$15 million for Hazelton Airlines Ltd., based in New South Wales, mostly because it needed Hazelton’s slots at Sydney Airport to compete for its share of the lucrative business market.

Although ANZ executives had initially forecast good results for the 2000/2001 fiscal year, partly due to the Olympics, in the end higher fuel costs, unfavorable exchange rates, and increased competition pointed towards a substantial revenue drop. Gary Toomey, taking over as CEO in early 2001, faced a debt load of NZ$3.9 billion (A$3.05 billion), devalued share price, and formidable competition from well-funded Qantas. Toomey had been finance director at Qantas, where he was known for slashing costs; it was hoped he could apply some of the same winning formulas at ANZ.

Principal Subsidiaries

Aeropelican Air Services Pty Limited (Australia); Air Nelson Limited; Air New Zealand (Australia) Pty Limited; Air New Zealand Destinations Limited; Ansett Australia Limited; Ansett Australia & Air New Zealand Engineering Services Limited; Ansett Holdings Limited; Ansett International Limited (Australia; 49%); Blue Pacific Tours Limited (Japan); Eagle Aviation Limited; Jetset Travel & Technology Holdings Pty Limited (Australia); Kendell Airlines (Australia) Pty Limited; New Zealand International Airlines Limited; Safe Air Limited; Show Group Pty Limited (Australia); Sky west Airlines Pty Limited; Tasman Aviation Enterprises (Queensland) Pty Limited (Australia); The Mount Cook Group Limited; Traveland International Pty Limited (Australia).

Principal Divisions

Air NZ Domestic/Trans-Tasman & SW Pacific; Air NZ International; Ansett Domestic; Ansett International; Australian Regional; Terminal Services; Cargo; ANNZES (Ansett Australia and Air New Zealand Engineering Services).

Principal Operating Units

Corporate; Commercial; Airline; Service.

Principal Competitors

Qantas Airways Limited.

Air New Zealand Limited

views updated May 21 2018

Air New Zealand Limited

Quay Tower
29 Customs Street West
Auckland
New Zealand
64 9 366 2400
Fax: 64 9 366 2401

Public Company
Incorporated: 1949 as Tasman Empire Airways Limited
Employees: 9,618
Stock Exchanges: New Zealand
Sales: NZ$2.89 billion
SICs: 4512 Air Transportation Scheduled; 4522 Air
Transportation Nonscheduled

Air New Zealand Limited is New Zealand’s largest airline, that country’s fifth largest public company, and one of the top 40 airlines (by annual revenues) in the world. In 1995 the airline was serving about 20 regional centers through its domestic operations and about 20 countries through its international division. In addition, the company was operating several subsidiaries involved in businesses ranging from cargo services and travel agencies to catering and engineering services. Operated as a government-owned airline from the 1950s through much of the 1980s, Air New Zealand established itself as the dominant national carrier, although its profit record was spotty. After bottoming out in the early 1980s, Air New Zealand was privatized beginning in the mid-1980s; healthy sales and profit gains ensued and even accelerated after the company became fully private in 1989. By the mid-1990s, Air New Zealand was generating close to US$1.5 billion in sales and transporting nearly 6.5 million passengers annually, making it the 40th largest airline in the world.

The company that became Air New Zealand was formed in 1939. It officially began operating in April 1940 as Tasman Empire Airways Limited, a joint venture that was registered as a limited liability company in Wellington, the capital of New Zealand. New Zealand’s government originally owned 20 percent of the enterprise, while the remainder was held by regional airlines BOAC (38 percent) and Qantas (23 percent), and Union Airways of New Zealand (19 percent). The company started out as a specialty service, providing air service across the Tasman Sea (between New Zealand, Australia, and Tasmania) with ‘flying boats.’ Among the individual founders of the company was Sir Geoffrey Roberts, who became known as the “Father of Air New Zealand” by many of his associates. Roberts served as the company’s first general manager until 1958, and then as a director and chairman of the company during the 1960s and 1970s.

Geary departed in June 1988 and was succeeded by R. James Scott. Scott was brought in to usher ANZ into a new era of privatization. Indeed, New Zealand’s government had started privatizing much of the nation’s air transport system in the mid-1980s, including airports and air traffic control systems. It also started moving ANZ toward privatization and preparing to open the New Zealand market to competition. To that end, it allowed a new air carrier called Ansett to begin operating in July 1987. Ansett began modestly with a single route. From there, however, the start-up expanded rapidly into other routes dominated by ANZ. It initially managed to snap up as much as 30 percent of the market in some of those routes and threatened to pose a formidable long-term challenge to ANZ’s domestic operations; some observers speculated that the government’s decision to allow Ansett to compete eventually played a role in Scott’s leaving ANZ.

ANZ completed its privatization in 1989. Its new owners included Australian rival Qantas, as well as Japan Air Lines and American Airlines. Those three companies owned 35 percent of the company, and the Brierley’s New Zealand investment firm controlled about 65 percent of the stock, much of which it had agreed to sell to the public. Thus, Air New Zealand was effectively free from government interference. With the domestic market increasingly open to competition and offering few growth opportunities, Scott planned to focus the newly private ANZ on international business. Tourism had been surging in New Zealand and surrounding areas, and Scott planned to boost the share of ANZ’s revenues attributable to international traffic from about 60 percent in 1988 to about 90 percent by 1993.

ANZ prospered under new management during the early 1990s and into the mid-1990s. Passenger volume rose from about 4.8 million in 1991 to 5.8 million in 1994 and then to 6.4 million in 1995. During the same period, sales rose 30 percent to move toward the US$1.5 billion mark for fiscal year ended June 1995. More importantly, operating profits rebounded and vaulted to roughly US$150 million annually by 1995. The gains were primarily the result of increased leisure traffic, particularly in Asia, and new programs designed to take advantage of tourism growth. In 1992, for example, ANZ introduced a new service called “beyond Australia” with operations in Taipei, Bangkok, and Brisbane. In 1993 ANZ initiated service to South Korea. In 1994 and 1995, moreover, ANZ boosted the number of direct flights from Los Angeles to Sydney to five per week.

On a typical weekday in 1995, ANZ made 528 flights between 60 airports and 19 countries. In addition to its thriving airline business, ANZ managed to rack up profit gains from its diverse assemblage of subsidiaries and operating units. Among the most important of those entities was Air New Zealand Engineering Services, which alone generated about US$176 million in sales for 1994. Other profit centers included a pilot training center, travel agency, information systems services, and catering and cargo operations. Other operations included ANZ’s domestic airline operations, which continued to face challenges prompted by deregulation and increased competition. For the mid- and late 1980s, ANZ management was planning to continue building its international leisure business with a focus on Asia, as well as to pursue its strategy of multidestinational regional tourism.

Principal Subsidiaries

The Mount Cook Group Limited; Air New Zealand Link; Jetset Travel and Technology Holdings Party Limited; Hotpack Reservations (NZ) Limited; United Travel Agencies Limited; Blue Pacific Tours Limited; Travel Industries Automated Systems Party Limited.