Wed "Sydney Morning Herald"
Banker better than Biggles
By Alan Kohler
September 10, 2003
Ralph Norris, the chief executive of Air New Zealand, has been a revelation since he was appointed 18 months ago.
"But he's a banker - what would he know about planes," the world's aviators squawked. It was generally assumed that this already sick company would soon fully succumb to the fumbling ministrations of this former boss of the Commonwealth Bank's New Zealand subsidiary, ASB Bank.
But while it's true that aviation is a uniquely complicated business, and Air NZ
was near death from ansettitis, Norris is actually in the process of turning Air NZ
around. In fact, it probably doesn't need Qantas any more.
In pressing the case for the alliance between the two a month ago, Norris had suggested that without it, Air NZ
would not survive. A couple of weeks later he announced an embarrassingly handsome $147 million profit and had to quietly take the earlier dire warning back. Now they're warning of long-term strategic difficulties, not quite the same.
None of which made any difference to Graeme Samuel's confirmation of his predecessor's decision to block the alliance. Ensuring the survival of a company that is 82 per cent owned by the NZ
Government is no basis on which to run Australian competition regulation.
So yesterday's decision was no surprise, and Air NZ
will survive - although it will need more capital than the NZ
Government can supply. The really interesting question is what that survival might mean for the Australian aviation market.
Subject to yesterday's decision being overturned on appeal, the big operational issue facing Air NZ
now is getting better access to the Australian market. At the moment it buys capacity from Qantas on the same terms as everybody else - in other words, it is being screwed.
The alliance was designed to give it access to code-sharing with Qantas so it could fly Kiwis on to other ports. Now it will need to negotiate a better deal with Qantas without providing an equity link (unlikely), do a deal with Virgin Blue or fly as a domestic Australian carrier itself. Under CER, it is allowed to do that but bought Ansett instead - not the better of the two ideas.
Qantas and Virgin Blue will now be watching nervously to see whether the banker turned aviator and his board decide to do what Air NZ
should have done in the first place, which is become a domestic carrier in Australia.
That's because Air NZ
is in danger of becoming a seriously profitable and effective airline. In 2002-03 its yield (revenue per passenger kilometre) was 12.3c. Qantas's was 10.7c.
's profit of $147 million was 42 per cent of Qantas's $343.5 million, earned by carrying 38 per cent the number of passengers Qantas carried and pulling in just 30 per cent of its revenue passenger kilometres (RPKs, the key aviation benchmark). This is an airline, remember, that 12 months ago was on the brink of collapse, and is still in turnaround mode.
Maintenance costs are lower - it costs up to 20 per cent less to overhaul a GE
aircraft engine at Air NZ
's Christchurch facility than at Qantas's in Sydney - and the New Zealand carrier's unit operating costs are said to be between 10 and 20 per cent below those of Qantas.
This was probably one of the keys to the deal for Qantas CEO Geoff Dixon. Having an alliance with a lower cost NZ
airline would escalate the pressure on the Australian unions.
Ian Thomas, at the Asia Pacific Centre for Aviation, believes Air NZ
would now have little trouble raising the capital needed to begin flying as a domestic Australian carrier, concentrating on the high-yield east coast routes.
Alternatively, Norris might look at doing something with Virgin Blue. Who could forget Richard Branson's humiliation of Norris's predecessor, Gary Twomey, when he tore up Air NZ
's $250 million takeover cheque on national television.
Of course, Branson then went on to take much more care with a rather smaller cheque from Chris Corrigan's Patrick Corp and Corrigan now calls the shots at Virgin Blue.
But Corrigan and Branson now have a problem. Not only will be difficult, if not impossible, for them to make any headway in the trans-Tasman market, they face the prospect of Air NZ
's own discount operation, Freedom, flying domestically in Australia and doing an Impulse/Compass in Australia - only much more effectively, and with more capital.
All in all, Samuel has deftly arranged for all the airlines to go back to cutting each throats - not just on the Tasman route but also, possibly, within Australia as well.