1 00:00:00,280 --> 00:00:02,520 Speaker 1: The information provided in this program is of a general 2 00:00:02,600 --> 00:00:05,320 Speaker 1: nature and is not intended to be personalized financial advice. 3 00:00:05,400 --> 00:00:07,760 Speaker 1: We encourage you to seek appropriate advice from a qualified 4 00:00:07,760 --> 00:00:11,000 Speaker 1: professional to suit your individual circumstances. Air New Zealand has 5 00:00:11,000 --> 00:00:14,120 Speaker 1: a lot on its plate, including engine issues, meaning aircraft 6 00:00:14,360 --> 00:00:17,000 Speaker 1: like the one behind me are out of action. Why 7 00:00:17,120 --> 00:00:20,840 Speaker 1: the CEO is adamant on it remaining an international airline. 8 00:00:21,079 --> 00:00:24,160 Speaker 2: We are still making money on these route but nowhere 9 00:00:24,200 --> 00:00:26,960 Speaker 2: near the extent that we needed to and actually not 10 00:00:27,080 --> 00:00:28,840 Speaker 2: really enough to cover the cost of capital. 11 00:00:28,920 --> 00:00:31,760 Speaker 1: Would you ever consider getting out of international if it's 12 00:00:31,760 --> 00:00:54,040 Speaker 1: not making much money. 13 00:00:45,040 --> 00:00:46,720 Speaker 3: We'll just go out. You got something going to hanger 14 00:00:46,720 --> 00:00:47,040 Speaker 3: out here? 15 00:00:47,240 --> 00:00:51,360 Speaker 1: Yes? Hah cool. The chief executive of Air New Zealand, 16 00:00:51,400 --> 00:00:54,560 Speaker 1: Greg Furan, is taking us inside the airline's hangar at 17 00:00:54,600 --> 00:00:55,520 Speaker 1: Auckland Airport. 18 00:00:55,800 --> 00:00:58,680 Speaker 2: So this is a brand new A three twenty one 19 00:00:59,160 --> 00:01:01,200 Speaker 2: with were with no engines. 20 00:01:01,600 --> 00:01:04,559 Speaker 1: It's one of many aircraft the company can't fly because 21 00:01:04,560 --> 00:01:07,600 Speaker 1: of engine issues. More are parked in the desert and 22 00:01:07,680 --> 00:01:08,600 Speaker 1: Alice Springs. 23 00:01:08,800 --> 00:01:12,399 Speaker 3: Can you imagine how I feel? All planes in. 24 00:01:12,400 --> 00:01:15,919 Speaker 1: The of COVID. There's aircraft there unable to be used, 25 00:01:16,280 --> 00:01:20,080 Speaker 1: even though you're allowed to fly them ount. I know 26 00:01:20,280 --> 00:01:23,800 Speaker 1: you look like a frustrated man. What it is the 27 00:01:23,840 --> 00:01:26,520 Speaker 1: issues with Rolls Royce and Pratt and Whitney Engines is 28 00:01:26,560 --> 00:01:31,080 Speaker 1: wiping millions from the airline's earnings potential. It's engineering team 29 00:01:31,160 --> 00:01:34,880 Speaker 1: are working here twenty four to seven, but it's not 30 00:01:35,000 --> 00:01:38,280 Speaker 1: the worst time to have aircraft out of action. Travel 31 00:01:38,319 --> 00:01:42,880 Speaker 1: demand is down markedly in this economy, especially domestically. 32 00:01:48,520 --> 00:01:51,120 Speaker 3: You know. Government, as I mentioned, it is down about 33 00:01:51,160 --> 00:01:52,760 Speaker 3: twenty eight percent a year ago. 34 00:01:53,400 --> 00:01:57,120 Speaker 2: Corporate and small medium enterprises is down about ten to 35 00:01:57,160 --> 00:01:58,040 Speaker 2: twelve percent. 36 00:01:58,360 --> 00:02:02,360 Speaker 1: In New Zealand's latest operating statistics show, group capacity was 37 00:02:02,400 --> 00:02:05,320 Speaker 1: down eight percent in July compared to the same time 38 00:02:05,440 --> 00:02:08,800 Speaker 1: last year. Revenue earned on all short haul routes that's 39 00:02:08,840 --> 00:02:11,880 Speaker 1: around the country, across the Tasman and to and from 40 00:02:11,919 --> 00:02:15,480 Speaker 1: the Pacific Islands is down a collective four percent on 41 00:02:15,520 --> 00:02:19,440 Speaker 1: a year ago. Long haul is up slightly thanks to Asia, 42 00:02:19,520 --> 00:02:24,560 Speaker 1: but the Americas are struggling with competition coming and hot Quantus, 43 00:02:24,760 --> 00:02:27,919 Speaker 1: United and Delta are all flying to the US from 44 00:02:27,960 --> 00:02:32,200 Speaker 1: Auckland Direct and Jetstar just added flights from Hamilton to 45 00:02:32,280 --> 00:02:36,200 Speaker 1: Australia daily. That competition will be putting pressure on air 46 00:02:36,280 --> 00:02:40,520 Speaker 1: fares for those international routes, but domestically, Air New Zealand 47 00:02:40,560 --> 00:02:44,840 Speaker 1: almost holds a monopoly and customers are complaining about the cost. 48 00:02:45,520 --> 00:02:48,440 Speaker 1: The airline argues its own costs have risen more than 49 00:02:48,480 --> 00:02:52,200 Speaker 1: twenty percent in the past five years. In this interview, 50 00:02:52,280 --> 00:02:55,520 Speaker 1: Greek Forn explains the impact it's pricing as having on 51 00:02:55,600 --> 00:02:59,079 Speaker 1: demand and why it's bothering to be an international airline 52 00:02:59,120 --> 00:03:04,359 Speaker 1: at all in this economy. Thank you do. It's great. 53 00:03:04,360 --> 00:03:05,360 Speaker 3: Good to see pleasure. 54 00:03:05,440 --> 00:03:07,400 Speaker 1: We only just did this recently. You're back again, back 55 00:03:07,400 --> 00:03:07,760 Speaker 1: for more. 56 00:03:08,680 --> 00:03:11,000 Speaker 3: I must have enjoyed it, I hope. 57 00:03:10,760 --> 00:03:12,720 Speaker 1: So I hope you enjoy this one too. I'm going 58 00:03:12,760 --> 00:03:14,480 Speaker 1: to start with a pretty broad question. We're going to 59 00:03:14,520 --> 00:03:18,600 Speaker 1: start big. What's your vision for our national carrier be. 60 00:03:18,680 --> 00:03:22,880 Speaker 2: The airline that Kiwi's would like to call their own. 61 00:03:24,360 --> 00:03:28,360 Speaker 2: So that's what I would like to leave is my 62 00:03:28,520 --> 00:03:31,560 Speaker 2: legacy and any airline that that Kiwis are proud of 63 00:03:31,600 --> 00:03:36,880 Speaker 2: that they would like to call their own, specifically to 64 00:03:37,160 --> 00:03:42,360 Speaker 2: become a world leading digital airline. So you know, that's 65 00:03:42,560 --> 00:03:46,480 Speaker 2: I think a plank that then layers into any airline 66 00:03:46,480 --> 00:03:47,760 Speaker 2: that we're all very proud of. 67 00:03:48,440 --> 00:03:50,040 Speaker 1: I like it. We'll come back to that later on. 68 00:03:50,560 --> 00:03:52,360 Speaker 1: If we look at the business of an airline, Yep, 69 00:03:52,440 --> 00:03:54,480 Speaker 1: it's not easy. It's not It's pretty complex. You have 70 00:03:54,600 --> 00:03:57,520 Speaker 1: a lot of safety and regulation, you have charges that 71 00:03:57,560 --> 00:04:00,240 Speaker 1: you have to pay to airports, you have expense of 72 00:04:00,320 --> 00:04:03,760 Speaker 1: aging assets being aircraft, and in your case you have 73 00:04:03,800 --> 00:04:06,480 Speaker 1: a bit of government ownership involved, and also in most 74 00:04:06,520 --> 00:04:10,080 Speaker 1: cases a pretty heavily unionized workforce. What does in the 75 00:04:10,120 --> 00:04:14,240 Speaker 1: best case scenario, a highly efficient airline look like on 76 00:04:14,280 --> 00:04:16,360 Speaker 1: a cost base and revenue making level. 77 00:04:16,640 --> 00:04:18,640 Speaker 2: Look, I would say to you first of all that 78 00:04:18,640 --> 00:04:21,280 Speaker 2: that if you go back over the history of airlines, 79 00:04:22,520 --> 00:04:27,880 Speaker 2: they have pretty difficult organizations to run. And the reason 80 00:04:28,000 --> 00:04:29,600 Speaker 2: is a lot of the points that you just you 81 00:04:29,800 --> 00:04:32,040 Speaker 2: just made. You know, if you have a look at 82 00:04:32,080 --> 00:04:35,640 Speaker 2: Michael Porter's five forces, you know, are there are there 83 00:04:35,720 --> 00:04:39,160 Speaker 2: substitutes readily available a lot of cases there are you 84 00:04:39,200 --> 00:04:41,120 Speaker 2: can jump in a car, or in parts of the 85 00:04:41,120 --> 00:04:45,000 Speaker 2: world you can jump on a train or whatever. You know, 86 00:04:45,040 --> 00:04:50,760 Speaker 2: what's the power of buyers like in other words, customers, Well, 87 00:04:51,320 --> 00:04:53,360 Speaker 2: in a lot of cases actually quite high. You know, 88 00:04:53,440 --> 00:04:56,960 Speaker 2: two thirds of our business is international. There's thirty two 89 00:04:57,080 --> 00:05:00,000 Speaker 2: flights to China a week at the moment, pick your airline, 90 00:05:00,200 --> 00:05:03,440 Speaker 2: pick your flight, and off you go. It's why airlines 91 00:05:03,520 --> 00:05:07,719 Speaker 2: run loyalty programs because the power of the buyer is 92 00:05:07,760 --> 00:05:12,960 Speaker 2: quite high. What's the ability to negotiate with your key 93 00:05:12,960 --> 00:05:17,560 Speaker 2: suppliers limit it. You can buy a Boeing, or you 94 00:05:17,600 --> 00:05:20,919 Speaker 2: can buy an airbus. If you're into turbo props, you 95 00:05:20,920 --> 00:05:24,560 Speaker 2: can buy ATR to have aland of stop making the 96 00:05:24,680 --> 00:05:28,200 Speaker 2: Q three hundred. So you know, I could go through 97 00:05:28,200 --> 00:05:33,120 Speaker 2: the other components. But they're difficult businesses because you don't 98 00:05:33,160 --> 00:05:36,040 Speaker 2: control a lot of the aspects. So what you've got 99 00:05:36,040 --> 00:05:38,880 Speaker 2: to do is make sure that you manage the bits 100 00:05:39,000 --> 00:05:42,760 Speaker 2: that you can control extremely well. So try and get 101 00:05:42,760 --> 00:05:44,919 Speaker 2: every bit of revenue you can out of the business. 102 00:05:46,000 --> 00:05:49,360 Speaker 2: Try and then maintain your costs down as low as 103 00:05:49,360 --> 00:05:53,120 Speaker 2: you possibly can, appreciating that fuel can be anything from 104 00:05:53,160 --> 00:05:55,720 Speaker 2: sort of twenty to thirty percent of your cost. Space 105 00:05:56,240 --> 00:06:02,640 Speaker 2: highly unionized, you know, plenty of regulation across all aspects 106 00:06:02,680 --> 00:06:06,680 Speaker 2: of it, whether it's the Civil Aviation Authority or the 107 00:06:06,920 --> 00:06:10,520 Speaker 2: FAA and the United States. So you've got to take 108 00:06:10,960 --> 00:06:13,760 Speaker 2: close control of all those leaders and make sure you 109 00:06:13,839 --> 00:06:15,159 Speaker 2: manage them all very carefully. 110 00:06:15,480 --> 00:06:17,360 Speaker 1: One of the things you can control to some degree 111 00:06:17,600 --> 00:06:20,119 Speaker 1: is your network. I want to talk about international quite heavily, 112 00:06:20,160 --> 00:06:21,920 Speaker 1: because as you said, it's two thirds of your business, 113 00:06:21,960 --> 00:06:24,640 Speaker 1: but a lot of conversation about domestic at the moment. 114 00:06:25,160 --> 00:06:27,560 Speaker 1: The numbers are pretty complex. We know that demand is 115 00:06:27,560 --> 00:06:29,600 Speaker 1: down heavily, you told me that very recently. But if 116 00:06:29,600 --> 00:06:31,920 Speaker 1: I look at your revenue numbers on the domestic network, 117 00:06:32,040 --> 00:06:36,680 Speaker 1: they're up. So bottom line, is your domestic network profitable. 118 00:06:37,480 --> 00:06:39,920 Speaker 2: Not as good as what it was, And you can 119 00:06:39,960 --> 00:06:42,760 Speaker 2: see that in the broad numbers. Whilst we don't separate 120 00:06:42,839 --> 00:06:46,960 Speaker 2: that out in terms of you know, domestic and international, 121 00:06:47,279 --> 00:06:51,359 Speaker 2: you can assume that what you're seeing is an increase 122 00:06:51,400 --> 00:06:54,440 Speaker 2: in fears over a period of time. And that's not 123 00:06:54,600 --> 00:06:58,920 Speaker 2: surprising because we've got costs that are going up pretty significantly. 124 00:06:59,279 --> 00:07:01,719 Speaker 2: You know, I just got back from Vancouver last week 125 00:07:01,760 --> 00:07:05,240 Speaker 2: and it was meeting with the owner of de Haviland, 126 00:07:05,360 --> 00:07:09,320 Speaker 2: which actually makes the Q three hundreds. Costs for parts 127 00:07:09,320 --> 00:07:12,880 Speaker 2: are just going through the roof. It's just one component 128 00:07:12,960 --> 00:07:16,280 Speaker 2: of it. But we're also dealing with airports, We're dealing 129 00:07:16,360 --> 00:07:19,880 Speaker 2: with the cost catering of dry cleaning or all the 130 00:07:19,920 --> 00:07:22,200 Speaker 2: things that everyone is dealing with in their life. 131 00:07:22,280 --> 00:07:24,080 Speaker 3: We're seeing in airlines. 132 00:07:23,880 --> 00:07:27,640 Speaker 2: Probably at a greater rate, and that means the only 133 00:07:27,680 --> 00:07:30,080 Speaker 2: way you can make a profit is to basically get 134 00:07:30,080 --> 00:07:32,200 Speaker 2: your revenue up. And so we've had to look at 135 00:07:32,240 --> 00:07:35,560 Speaker 2: things like ancillary revenue and look at the base fares. 136 00:07:36,080 --> 00:07:39,360 Speaker 2: So yeah, I'm not surprised that the revenue is up, 137 00:07:39,680 --> 00:07:41,600 Speaker 2: but the issue is the costs are up even more. 138 00:07:41,880 --> 00:07:44,160 Speaker 1: How do you think about pricing. I know that this 139 00:07:44,320 --> 00:07:46,600 Speaker 1: is a very controversial topic that you have to answer 140 00:07:46,600 --> 00:07:47,760 Speaker 1: a lot of the time, but I'm just going to 141 00:07:47,840 --> 00:07:50,720 Speaker 1: understand how you think about that, because if you increase 142 00:07:50,800 --> 00:07:53,120 Speaker 1: pricing of airfares to a point, then where do you 143 00:07:53,160 --> 00:07:56,600 Speaker 1: think that actually impacts demand and starts turning people off 144 00:07:56,680 --> 00:07:59,040 Speaker 1: using your service. Do you think you're at that point? Now? 145 00:07:59,240 --> 00:08:03,200 Speaker 2: Oh, we are at that point. And and you know 146 00:08:03,400 --> 00:08:06,120 Speaker 2: it's it even gets a little bit more complex when 147 00:08:06,160 --> 00:08:10,240 Speaker 2: you think about the domestic business because a reasonable proportion 148 00:08:10,400 --> 00:08:14,040 Speaker 2: of that will be, say, government spent. And you know, 149 00:08:14,120 --> 00:08:16,600 Speaker 2: I've spoken about the fact that we've seen a tightening 150 00:08:16,640 --> 00:08:19,440 Speaker 2: in the economy. Government departments have been told to pull back, 151 00:08:19,760 --> 00:08:24,280 Speaker 2: So we're seeing spend in the government sector down consistently 152 00:08:24,600 --> 00:08:28,760 Speaker 2: twenty eight to thirty percent week on week so that's 153 00:08:28,760 --> 00:08:31,920 Speaker 2: a pretty significant amount. But what's more important there is 154 00:08:31,960 --> 00:08:33,800 Speaker 2: that that's a group of people who tended to book 155 00:08:33,840 --> 00:08:37,839 Speaker 2: late and therefore paid high affairs. So what happens is 156 00:08:37,920 --> 00:08:41,280 Speaker 2: that the mix in your business changes. It's not only 157 00:08:41,320 --> 00:08:45,120 Speaker 2: the fact you've got less people flying, but the people 158 00:08:45,200 --> 00:08:48,520 Speaker 2: who who were flying tended to pay more because. 159 00:08:48,240 --> 00:08:49,000 Speaker 3: They booked late. 160 00:08:49,040 --> 00:08:53,760 Speaker 2: In one flexibility, you know, corporate small medium enterprises are 161 00:08:53,800 --> 00:08:57,280 Speaker 2: down ten to twelve percent. Again, not all that surprising. 162 00:08:57,320 --> 00:08:59,360 Speaker 2: You know, when you get around town and you just 163 00:08:59,400 --> 00:09:01,800 Speaker 2: get a scent of what people are living with at 164 00:09:01,800 --> 00:09:05,360 Speaker 2: the moment, you know, mortgage rates, all those things. It's 165 00:09:05,400 --> 00:09:07,360 Speaker 2: not surprising that we're seeing a little bit tougher. That 166 00:09:07,920 --> 00:09:11,560 Speaker 2: it's cyclical that will come back, So I'm not too 167 00:09:11,600 --> 00:09:14,480 Speaker 2: worried about it. You've just got to make sure that 168 00:09:14,559 --> 00:09:17,720 Speaker 2: you make really good decisions during this period. And that's 169 00:09:17,720 --> 00:09:20,440 Speaker 2: something that I know that I asked the team to 170 00:09:20,480 --> 00:09:23,040 Speaker 2: do all the time. Is even though it is tight 171 00:09:23,120 --> 00:09:26,600 Speaker 2: and it is tough, make good decisions. Decisions you're going 172 00:09:26,640 --> 00:09:29,360 Speaker 2: to be proud of in a year's time and five 173 00:09:29,480 --> 00:09:29,960 Speaker 2: years time. 174 00:09:30,280 --> 00:09:33,079 Speaker 1: Okay, So domestic is profitable, although not as profitable as 175 00:09:33,080 --> 00:09:36,359 Speaker 1: you'd like. Is the international network profitable. 176 00:09:36,760 --> 00:09:40,080 Speaker 2: So once again, it depends where you're looking at. So 177 00:09:40,600 --> 00:09:44,160 Speaker 2: long haul is a total business. We're okay with where 178 00:09:44,160 --> 00:09:44,680 Speaker 2: we're sitting. 179 00:09:45,240 --> 00:09:47,080 Speaker 1: It's not a making or losing. Is it up or down? 180 00:09:47,240 --> 00:09:50,440 Speaker 2: It's not making as much as it was the previous year. 181 00:09:50,440 --> 00:09:52,599 Speaker 2: You know, the previous year we made five hundred and 182 00:09:52,679 --> 00:09:56,360 Speaker 2: eighty five million dollars. This last year we've come in 183 00:09:56,440 --> 00:09:58,719 Speaker 2: with what two hundred and twenty two millions, So you 184 00:09:58,760 --> 00:10:02,160 Speaker 2: can see that right across the board we won't have 185 00:10:02,280 --> 00:10:05,559 Speaker 2: generated the same side type of returns. Whether it's international, 186 00:10:05,600 --> 00:10:08,839 Speaker 2: whether it's domestic, whether it's cargo. We are still making 187 00:10:08,920 --> 00:10:12,160 Speaker 2: money on these routes, but nowhere near the extent that 188 00:10:12,200 --> 00:10:14,880 Speaker 2: we needed to and actually not really enough to cover 189 00:10:14,920 --> 00:10:18,600 Speaker 2: the cost of capital. But you can break down international 190 00:10:18,640 --> 00:10:21,319 Speaker 2: and you can say, well, so what's happening around the place. 191 00:10:21,360 --> 00:10:23,760 Speaker 2: You know, I went on holiday and I went to 192 00:10:23,760 --> 00:10:26,080 Speaker 2: Tokyo and I can see that you've put more seats 193 00:10:26,080 --> 00:10:28,160 Speaker 2: onto Tokyo and that's fantastic. 194 00:10:28,240 --> 00:10:30,720 Speaker 3: And the answer is, yes, it is good. The year 195 00:10:31,000 --> 00:10:31,400 Speaker 3: is down. 196 00:10:31,880 --> 00:10:33,920 Speaker 2: People in New Zealand are looking for somewhere to go, 197 00:10:34,000 --> 00:10:36,040 Speaker 2: less of them and going to China less of them 198 00:10:36,080 --> 00:10:37,640 Speaker 2: are going to Hong Kong, and more of them are 199 00:10:37,679 --> 00:10:39,040 Speaker 2: going up to Japan. 200 00:10:39,760 --> 00:10:41,280 Speaker 3: In the US, we're. 201 00:10:41,040 --> 00:10:45,000 Speaker 2: Dealing with about fifty two percent more seats than we 202 00:10:45,040 --> 00:10:49,200 Speaker 2: would normally expect on those particular routes. So guess what 203 00:10:50,120 --> 00:10:52,200 Speaker 2: fears are down there, and we're not getting the returns 204 00:10:52,240 --> 00:10:54,839 Speaker 2: we want to. Once again, it's cyclical, it will work 205 00:10:54,880 --> 00:10:55,880 Speaker 2: its way through well. 206 00:10:55,880 --> 00:10:58,040 Speaker 1: As you mentioned, the cost of capital is obviously higher 207 00:10:58,040 --> 00:11:00,960 Speaker 1: for these international routes. You've got to staff, have them 208 00:11:01,200 --> 00:11:03,760 Speaker 1: on the ground for longer and somewhere expensive like New 209 00:11:03,840 --> 00:11:06,040 Speaker 1: York where you have flights, but a lot of those 210 00:11:06,080 --> 00:11:09,720 Speaker 1: are half empty. So I'm told, is it worth in 211 00:11:09,720 --> 00:11:12,920 Speaker 1: New Zealand being an international business? Would you ever consider 212 00:11:12,960 --> 00:11:16,120 Speaker 1: getting out of international if it's not making much money? 213 00:11:16,760 --> 00:11:17,000 Speaker 3: Well? 214 00:11:17,200 --> 00:11:19,480 Speaker 2: Never is one of those words that I always try 215 00:11:19,520 --> 00:11:22,920 Speaker 2: and avoid medicine, because I've learned over the years that 216 00:11:23,760 --> 00:11:26,240 Speaker 2: you don't back yourself into a corner on that. But 217 00:11:26,320 --> 00:11:30,160 Speaker 2: I can tell you categorically we have no intention of 218 00:11:30,440 --> 00:11:35,640 Speaker 2: really making any dramatic changes to our international network. Actually 219 00:11:35,640 --> 00:11:38,960 Speaker 2: we see opportunities to do a little bit more, but 220 00:11:39,520 --> 00:11:42,520 Speaker 2: we're also very cautious because you know, it's an area 221 00:11:42,559 --> 00:11:46,840 Speaker 2: where the competition is fares. You're up against a lot 222 00:11:46,880 --> 00:11:50,079 Speaker 2: of sovereign carriers out there, so you've got to be careful. 223 00:11:50,120 --> 00:11:52,640 Speaker 2: But we like where we fly to. We like the 224 00:11:52,679 --> 00:11:55,760 Speaker 2: fact that the United States is pretty core to us. 225 00:11:55,880 --> 00:11:59,600 Speaker 2: We like what we do as we head up into Asia, 226 00:12:00,200 --> 00:12:03,840 Speaker 2: the Australia as critical for us of Pacific islands, and 227 00:12:03,920 --> 00:12:07,840 Speaker 2: we'll consider to look at selectively where else we can 228 00:12:07,880 --> 00:12:11,200 Speaker 2: take the business, but in a very sort of measured 229 00:12:11,360 --> 00:12:13,240 Speaker 2: and appropriate manner. 230 00:12:14,040 --> 00:12:15,920 Speaker 1: Just ask that, in a sort of another roundabout way, 231 00:12:15,960 --> 00:12:19,240 Speaker 1: why should in New Zealand be an international airline. Why 232 00:12:19,280 --> 00:12:22,080 Speaker 1: can't it just be a domestic airline with code shares 233 00:12:22,559 --> 00:12:23,800 Speaker 1: around the world for example. 234 00:12:24,760 --> 00:12:27,280 Speaker 2: Well, we do have code shares as you can imagine 235 00:12:27,360 --> 00:12:31,400 Speaker 2: with many airlines as part of Star Alliance, and we 236 00:12:31,520 --> 00:12:35,679 Speaker 2: also have some alliance arrangements, you know, particularly with United 237 00:12:35,920 --> 00:12:40,000 Speaker 2: and Singapore. But you know, it's a pretty regulated industry, 238 00:12:40,080 --> 00:12:42,640 Speaker 2: so you just can't go out there and do deals 239 00:12:42,720 --> 00:12:45,280 Speaker 2: with anyone and everyone. They've got to be signed off 240 00:12:45,800 --> 00:12:48,640 Speaker 2: by not only the Ministry of Transport here in this country, 241 00:12:48,679 --> 00:12:52,680 Speaker 2: but also by the appropriate administration in the country that 242 00:12:52,720 --> 00:12:56,600 Speaker 2: you're flying to. So you know, the world wants airlines 243 00:12:56,640 --> 00:13:00,760 Speaker 2: to be competitive, and trust me, they are competitive, and 244 00:13:00,840 --> 00:13:03,240 Speaker 2: so you know you've got to be thoughtful about that. 245 00:13:03,800 --> 00:13:04,640 Speaker 3: Why would we. 246 00:13:04,559 --> 00:13:07,800 Speaker 2: Want to fly to some of those locations, you know, 247 00:13:07,960 --> 00:13:10,760 Speaker 2: Number one, it's part of our purpose connecting the world 248 00:13:12,040 --> 00:13:15,640 Speaker 2: with in terms of people. Number Two, we've got a 249 00:13:15,679 --> 00:13:19,520 Speaker 2: responsibility to move cargo in this country and we move 250 00:13:19,559 --> 00:13:22,959 Speaker 2: a reasonable amount of that. And number three, there are 251 00:13:23,080 --> 00:13:26,000 Speaker 2: actually routes that are pretty good for us. And so 252 00:13:26,880 --> 00:13:30,280 Speaker 2: you know, I back ourselves when you know we've got 253 00:13:30,280 --> 00:13:35,360 Speaker 2: good product, We've got tremendous people, and I get plenty 254 00:13:35,400 --> 00:13:39,680 Speaker 2: of feedback from not just people in New Zealand but 255 00:13:39,720 --> 00:13:42,760 Speaker 2: people outside of New Zealand who travel with us and say, 256 00:13:42,800 --> 00:13:46,400 Speaker 2: you know what, you run a great airline, so please 257 00:13:46,520 --> 00:13:48,960 Speaker 2: keep flying. We're going to continue to support you. 258 00:13:49,440 --> 00:13:51,560 Speaker 1: It sounds like from that Art's agreed that some of 259 00:13:51,559 --> 00:13:55,120 Speaker 1: it is commercial obviously on some routes, but a lot 260 00:13:55,120 --> 00:13:58,000 Speaker 1: of it's also just economic charity in a. 261 00:13:57,960 --> 00:13:59,640 Speaker 3: Way, I wouldn't say that at all. 262 00:13:59,720 --> 00:14:02,320 Speaker 2: You know, there's no point in running a business unless 263 00:14:02,320 --> 00:14:05,080 Speaker 2: you make a profit so you can continue to invest in. 264 00:14:05,400 --> 00:14:09,000 Speaker 2: What I will tell you is that profitability on routes changes, 265 00:14:09,920 --> 00:14:12,840 Speaker 2: you know, unlike a business that I used to be in, 266 00:14:12,880 --> 00:14:13,920 Speaker 2: which was retail. 267 00:14:14,040 --> 00:14:16,520 Speaker 3: You put down a physical store. 268 00:14:16,840 --> 00:14:19,640 Speaker 2: On the corner of Maine and Central, and there it's 269 00:14:19,680 --> 00:14:23,640 Speaker 2: sat for twenty or thirty or forty years. I'm now 270 00:14:23,680 --> 00:14:26,400 Speaker 2: in a business where you've got a one hundred and 271 00:14:26,440 --> 00:14:30,160 Speaker 2: eighty or two hundred million dollar piece of machinery. 272 00:14:30,120 --> 00:14:30,800 Speaker 3: That can move. 273 00:14:31,480 --> 00:14:33,880 Speaker 2: You know, we can decide to point that machinery to 274 00:14:33,960 --> 00:14:36,560 Speaker 2: South America, or we can decide to point it up 275 00:14:36,640 --> 00:14:41,200 Speaker 2: to Asia, and so can your competitors. So what happens 276 00:14:41,320 --> 00:14:45,480 Speaker 2: is what was a particularly profitable area can change and 277 00:14:45,600 --> 00:14:50,040 Speaker 2: does change. So you've got to keep a reasonably open mind. 278 00:14:50,120 --> 00:14:52,280 Speaker 2: You know, when I look back on some of the 279 00:14:52,320 --> 00:14:55,880 Speaker 2: areas that Air New Zealand was flying to twenty years ago, 280 00:14:56,360 --> 00:14:59,320 Speaker 2: you know, I think we're flying into Frankfurt, for example. 281 00:14:59,640 --> 00:15:02,320 Speaker 2: Now is Frankfurt on the list of places that I'm 282 00:15:02,360 --> 00:15:03,680 Speaker 2: heading back to immediately? 283 00:15:03,800 --> 00:15:04,440 Speaker 3: No, it isn't. 284 00:15:05,680 --> 00:15:10,920 Speaker 2: You know, just as I started we were going into Argentina, 285 00:15:11,400 --> 00:15:14,120 Speaker 2: we pulled out of that route. Would we never go 286 00:15:14,280 --> 00:15:16,480 Speaker 2: back there? I would never say never, As I said, 287 00:15:16,760 --> 00:15:19,560 Speaker 2: don't have an intention to get back there soon. Is 288 00:15:19,600 --> 00:15:21,960 Speaker 2: India on the cards at some stage, you'd think it 289 00:15:22,000 --> 00:15:23,160 Speaker 2: probably should. 290 00:15:22,920 --> 00:15:25,000 Speaker 1: Be I wants to ask you that question. It is. 291 00:15:25,200 --> 00:15:28,720 Speaker 2: Yeah, So we're thinking about that and how we might 292 00:15:28,880 --> 00:15:31,320 Speaker 2: do that. You know, we've got Air India, they're part 293 00:15:31,360 --> 00:15:34,760 Speaker 2: of Star Alliance. Do you head down the path of 294 00:15:34,840 --> 00:15:37,360 Speaker 2: setting something up there? Those are the sort of things 295 00:15:37,360 --> 00:15:38,280 Speaker 2: that we're thinking about. 296 00:15:38,960 --> 00:15:42,000 Speaker 1: Should we talk about fleet? For years, In New Zealand 297 00:15:42,040 --> 00:15:45,720 Speaker 1: has been simplifying its fleet. By the early twenty thirties, 298 00:15:45,960 --> 00:15:48,920 Speaker 1: it plans to only operate one type of wide body 299 00:15:49,240 --> 00:15:53,760 Speaker 1: Boeing seven eight seven Dreamliners. It already only operates Airbus 300 00:15:53,800 --> 00:15:56,680 Speaker 1: for its narrow body fleet, and just two types of 301 00:15:56,720 --> 00:16:01,400 Speaker 1: smaller turboprops. Domestically, the call to moodie the airline's assets 302 00:16:01,440 --> 00:16:04,920 Speaker 1: has led to a concentration of certain engines. The ones 303 00:16:04,960 --> 00:16:08,120 Speaker 1: manufactured by Rolls Royce and Pratt and Whitney have had 304 00:16:08,200 --> 00:16:12,440 Speaker 1: surprise maintenance schedule changes, meaning In New Zealand has ten 305 00:16:12,560 --> 00:16:16,440 Speaker 1: aircraft out of operation at the moment and that's impacting 306 00:16:16,520 --> 00:16:19,160 Speaker 1: its earnings. It claims it would have made an extra 307 00:16:19,200 --> 00:16:22,520 Speaker 1: one hundred million dollars and the financial year just ended 308 00:16:22,880 --> 00:16:25,640 Speaker 1: if its entire fleet was in the air. But it's 309 00:16:25,680 --> 00:16:29,239 Speaker 1: not unusual for airlines to have some aircraft undergoing maintenance 310 00:16:29,320 --> 00:16:32,360 Speaker 1: or otherwise at any given time. But the scale of 311 00:16:32,360 --> 00:16:35,360 Speaker 1: Air New Zealand's issues a bigger than most. With its 312 00:16:35,360 --> 00:16:38,360 Speaker 1: capacity set to be constrained for another year at least, 313 00:16:38,680 --> 00:16:42,160 Speaker 1: it may miss out further when demand for travel bounces back. 314 00:16:44,240 --> 00:16:47,560 Speaker 2: You know, as I think about the fleet, we needed 315 00:16:47,560 --> 00:16:51,720 Speaker 2: a period where as we dealt with COVID where capacity 316 00:16:51,800 --> 00:16:54,760 Speaker 2: was down, and then we've always had every intention to 317 00:16:54,760 --> 00:16:57,160 Speaker 2: get out there and grow. And whether that growth is 318 00:16:57,200 --> 00:16:59,880 Speaker 2: sort of three percent a year or four percent a year, 319 00:17:00,280 --> 00:17:04,879 Speaker 2: that's always been our intention. Challenge we've got we just 320 00:17:05,040 --> 00:17:08,679 Speaker 2: can't get hold of the machinery at this point, but 321 00:17:09,320 --> 00:17:11,400 Speaker 2: that'll get sorted and it will come. 322 00:17:12,000 --> 00:17:14,480 Speaker 1: Aircraft out of action at the moment, ten of them 323 00:17:14,880 --> 00:17:17,359 Speaker 1: out of your control because of these engine issues. Can't 324 00:17:17,400 --> 00:17:19,480 Speaker 1: you whet lease or dry lea's aircraft? Are you considering 325 00:17:19,560 --> 00:17:21,399 Speaker 1: doing that to a larger degree we have. 326 00:17:21,640 --> 00:17:25,400 Speaker 2: We've not only done that, we've actually acquired more aircraft 327 00:17:25,480 --> 00:17:29,600 Speaker 2: as well. So we've currently got three Triple sevens that 328 00:17:29,640 --> 00:17:31,960 Speaker 2: we were planning to have in the lease. Those are 329 00:17:32,000 --> 00:17:34,720 Speaker 2: actually planes that used to fly for Cathay Pacific and 330 00:17:34,720 --> 00:17:37,760 Speaker 2: they've gone back to their less are and we've said, 331 00:17:37,800 --> 00:17:40,680 Speaker 2: thank you very much, We'll grab those three and many 332 00:17:40,720 --> 00:17:43,040 Speaker 2: of our customers will have traveled on those and got 333 00:17:43,080 --> 00:17:46,359 Speaker 2: on them and gone, gee, this isn't any New Zealand plane. 334 00:17:46,400 --> 00:17:50,359 Speaker 2: And the answer is no, it's an older Cathay Pacific plane. 335 00:17:50,840 --> 00:17:55,240 Speaker 2: But we needed those extra seeds. We've got some extra 336 00:17:55,440 --> 00:18:00,359 Speaker 2: A three twenties from Airbus. We've held back on sending 337 00:18:00,359 --> 00:18:02,920 Speaker 2: some planes back. We've ordered some more. We've got two 338 00:18:02,960 --> 00:18:07,080 Speaker 2: more coming, and about April next year we've got two 339 00:18:07,160 --> 00:18:12,120 Speaker 2: more atrs coming. We wet lease a plane, you know, 340 00:18:12,320 --> 00:18:14,000 Speaker 2: and we ran that for the best part of a 341 00:18:14,040 --> 00:18:17,520 Speaker 2: year on Auckland per So we're sort of pulled every 342 00:18:17,600 --> 00:18:21,160 Speaker 2: single lever we can and continue to pull them as 343 00:18:21,200 --> 00:18:24,119 Speaker 2: we deal with something which frankly is going to be 344 00:18:24,160 --> 00:18:26,000 Speaker 2: around for at least another couple of years. 345 00:18:26,119 --> 00:18:29,600 Speaker 1: Do you get compensated by the manufacturer to what degree 346 00:18:29,680 --> 00:18:32,080 Speaker 1: fully for loss of earnings and not any. 347 00:18:33,040 --> 00:18:33,840 Speaker 3: Not anywhere near it? 348 00:18:33,960 --> 00:18:36,919 Speaker 2: And you know, I'll speak a little bit about that 349 00:18:37,000 --> 00:18:39,560 Speaker 2: and then give you give you an example of how 350 00:18:39,600 --> 00:18:43,719 Speaker 2: this plays out. So you know, we said when we 351 00:18:43,720 --> 00:18:46,880 Speaker 2: put our results out just a month or so ago, 352 00:18:48,160 --> 00:18:50,680 Speaker 2: we know that we're impacted to the tune of about 353 00:18:50,720 --> 00:18:53,760 Speaker 2: one hundred million dollars worth the hard costs, and they 354 00:18:53,800 --> 00:18:56,600 Speaker 2: are things like leasing these triple sevens. You know they're 355 00:18:56,600 --> 00:19:01,520 Speaker 2: not cheap, so we get some compensation, but no, we're 356 00:19:01,560 --> 00:19:04,280 Speaker 2: near enough to even cover the hard costs. 357 00:19:04,520 --> 00:19:05,800 Speaker 1: How much of one hundred mili do you get? 358 00:19:05,840 --> 00:19:09,400 Speaker 2: Bet we don't share that. That's a negotiation that we 359 00:19:09,480 --> 00:19:13,280 Speaker 2: do with the manufacturer. But I can tell you there's 360 00:19:13,280 --> 00:19:16,359 Speaker 2: at least another fifty million of soft costs that we 361 00:19:16,480 --> 00:19:19,040 Speaker 2: have to deal with. So you know, we're doing things 362 00:19:19,080 --> 00:19:22,000 Speaker 2: like twice as many engine changes as we used to 363 00:19:22,000 --> 00:19:26,000 Speaker 2: do on a smaller fleet, twice as many. And these 364 00:19:26,040 --> 00:19:28,840 Speaker 2: are not easy things to do. You just don't sort 365 00:19:28,840 --> 00:19:31,119 Speaker 2: of rock up and stand under the wing of a 366 00:19:31,160 --> 00:19:33,600 Speaker 2: seven eight seven and say let's drop the engine off. 367 00:19:34,000 --> 00:19:37,520 Speaker 2: So we've done twice as many of those. A good example, 368 00:19:37,560 --> 00:19:39,719 Speaker 2: you know, I mentioned I flew up to Vancouver. So 369 00:19:39,760 --> 00:19:42,240 Speaker 2: I jump on the plane on Sunday and we fly 370 00:19:42,359 --> 00:19:44,440 Speaker 2: up there and great flight. 371 00:19:44,680 --> 00:19:45,920 Speaker 1: I've done it. Talking it is a great flight. 372 00:19:46,000 --> 00:19:48,480 Speaker 2: Talking to the pilots as we got off and I said, 373 00:19:49,560 --> 00:19:50,600 Speaker 2: you know, what's your roster? 374 00:19:50,720 --> 00:19:50,800 Speaker 3: Now? 375 00:19:50,840 --> 00:19:52,880 Speaker 2: Are you going to be around on Wednesday? Because I'm 376 00:19:52,920 --> 00:19:55,480 Speaker 2: flying back on Wednesday and they said, no, no, we're 377 00:19:55,600 --> 00:19:57,400 Speaker 2: passengering back tomorrow. 378 00:19:57,520 --> 00:19:58,720 Speaker 1: That's a waste of money, isn't it. 379 00:19:58,800 --> 00:20:01,280 Speaker 2: I said, why are we doing that? And of course 380 00:20:01,359 --> 00:20:04,280 Speaker 2: the reason is they're triple seven pilots. So we took 381 00:20:04,280 --> 00:20:08,040 Speaker 2: a triple seven up on Wednesday because we're having to 382 00:20:08,080 --> 00:20:13,720 Speaker 2: adjust our fleet to make every single flying our account. 383 00:20:13,920 --> 00:20:16,760 Speaker 2: It's a Dreamliner that's going up a seven eight and 384 00:20:16,840 --> 00:20:20,680 Speaker 2: they can't fly it. Some pilots can, these ones could. 385 00:20:21,119 --> 00:20:24,080 Speaker 2: So that's an idea of a soft cost that we're 386 00:20:24,119 --> 00:20:24,560 Speaker 2: dealing with. 387 00:20:24,600 --> 00:20:26,360 Speaker 3: Now. Can I tell you? 388 00:20:26,760 --> 00:20:30,000 Speaker 2: It's really frustrating for our customers, isn't it? Because you know, 389 00:20:30,040 --> 00:20:31,359 Speaker 2: I thought I was going to be on a triple 390 00:20:31,400 --> 00:20:33,439 Speaker 2: seven and I was going to sit in sort of 391 00:20:33,960 --> 00:20:38,199 Speaker 2: three C, but now that's been changed to six F 392 00:20:38,560 --> 00:20:43,399 Speaker 2: and you know, so frustrating for customers and frustrating for 393 00:20:43,480 --> 00:20:45,880 Speaker 2: our Air New Zealand team as they have to deal 394 00:20:45,880 --> 00:20:49,840 Speaker 2: with that complexity. But guess what we're doing it By 395 00:20:49,920 --> 00:20:53,520 Speaker 2: and large, the network is intact. There wouldn't be too 396 00:20:53,560 --> 00:20:59,080 Speaker 2: many airlines who have the percentage of fleet impacted that 397 00:20:59,119 --> 00:21:02,480 Speaker 2: we do anywhere around the world. Our competitors don't, So, 398 00:21:02,680 --> 00:21:06,560 Speaker 2: you know, Virgin aren't suffering this. Quantus aren't suffering this. 399 00:21:07,040 --> 00:21:10,760 Speaker 2: Singapore Airlines aren't suffering this. United Airlines now they may. 400 00:21:11,840 --> 00:21:14,560 Speaker 2: But it just so happens that some of the choices 401 00:21:14,640 --> 00:21:17,320 Speaker 2: we've made many years ago, and it is what it is. 402 00:21:17,400 --> 00:21:20,920 Speaker 2: You know, we picked Trent one thousand engines. If you 403 00:21:20,960 --> 00:21:24,439 Speaker 2: didn't pick a Trent, your other option was a GE engine. 404 00:21:24,480 --> 00:21:28,199 Speaker 2: If you had picked a G engine, you're smiling. If 405 00:21:28,240 --> 00:21:31,960 Speaker 2: you picked a Trent, you're not. So it is what 406 00:21:32,000 --> 00:21:34,639 Speaker 2: it is. You've got to deal with it and it 407 00:21:34,640 --> 00:21:35,600 Speaker 2: will pass. Well. 408 00:21:35,600 --> 00:21:38,520 Speaker 1: I wanted to ask you about exactly that, because it 409 00:21:38,560 --> 00:21:40,960 Speaker 1: is the result. While it's largely outside of your control, 410 00:21:41,000 --> 00:21:42,439 Speaker 1: and as you said, it's a gamble about who you 411 00:21:42,480 --> 00:21:45,240 Speaker 1: go for with engines and manufacturing at that time. But 412 00:21:46,080 --> 00:21:49,280 Speaker 1: is it not a feature risk of the fleet simplification 413 00:21:49,440 --> 00:21:52,439 Speaker 1: program that began many years ago? And how does that 414 00:21:52,880 --> 00:21:55,920 Speaker 1: change the way that you might think about manufacturing part 415 00:21:56,000 --> 00:21:58,680 Speaker 1: decisions going forward given how this one is aged. 416 00:21:58,720 --> 00:22:01,960 Speaker 2: Sure, so all a matter of degrees, but boy, these 417 00:22:02,000 --> 00:22:04,800 Speaker 2: are important decisions. So you know, I'm glad you've asked. 418 00:22:04,800 --> 00:22:09,440 Speaker 2: The question. Doesn't make sense for an airline of our size, 419 00:22:09,600 --> 00:22:13,399 Speaker 2: was sort of circ twenty five wide bodies to be 420 00:22:13,520 --> 00:22:17,320 Speaker 2: running a fleet of wide bodies from air Bus and 421 00:22:17,520 --> 00:22:20,280 Speaker 2: a fleet of wide bodies from Boeing. 422 00:22:21,080 --> 00:22:21,679 Speaker 3: Probably not. 423 00:22:22,240 --> 00:22:26,240 Speaker 2: Now, if you had fifty planes, you might say I 424 00:22:26,320 --> 00:22:29,640 Speaker 2: need to split that one. But the cost of then 425 00:22:29,760 --> 00:22:32,600 Speaker 2: running a different set of tools, a different set of 426 00:22:32,640 --> 00:22:36,919 Speaker 2: engineering requirements, a different set of seat parts, a different 427 00:22:37,000 --> 00:22:40,720 Speaker 2: set of you know, flow and service on board the 428 00:22:40,800 --> 00:22:43,560 Speaker 2: plane and cabin crew. You would say to yourself on 429 00:22:43,600 --> 00:22:47,480 Speaker 2: an airline running twenty five or so wide bodies, pick 430 00:22:47,560 --> 00:22:53,840 Speaker 2: one and try and pick the right one. Now, does 431 00:22:53,840 --> 00:22:56,080 Speaker 2: that mean that you should say I'm going to run 432 00:22:56,119 --> 00:22:59,760 Speaker 2: with Boeing across my entire fleet. We actually don't have to. 433 00:23:00,119 --> 00:23:02,760 Speaker 2: We haven't. So we've got Boeing on the wide bodies 434 00:23:02,920 --> 00:23:07,120 Speaker 2: and we've got Airbus on the Narrowbot on the single laves. 435 00:23:07,560 --> 00:23:09,440 Speaker 3: And I think that's a great choice. 436 00:23:09,400 --> 00:23:12,679 Speaker 2: Made before my time, but what a really good choice 437 00:23:12,720 --> 00:23:16,000 Speaker 2: by the company to do that. And then on the turboprops, 438 00:23:16,000 --> 00:23:19,240 Speaker 2: of which we run just over fifty, we've got ATR 439 00:23:20,000 --> 00:23:22,959 Speaker 2: and we've got to have LIT. So I think what 440 00:23:23,000 --> 00:23:26,560 Speaker 2: you're seeing in New Zealand do is making really good 441 00:23:26,680 --> 00:23:33,040 Speaker 2: choices where there's a degree of simplification which helps, but 442 00:23:33,359 --> 00:23:36,720 Speaker 2: just enough diversification that we don't have quite all our 443 00:23:36,800 --> 00:23:38,240 Speaker 2: eggs in one basket. 444 00:23:38,720 --> 00:23:41,679 Speaker 1: In part two of this episode, Greg Furn reveals his 445 00:23:41,800 --> 00:23:46,240 Speaker 1: surprise at Auckland Airport's one point four billion dollar capital. 446 00:23:46,000 --> 00:23:48,440 Speaker 3: Rays this is not a small spent. 447 00:23:48,600 --> 00:23:51,840 Speaker 1: And she is how he's dealing with his own unhappy customers. 448 00:23:52,480 --> 00:23:55,280 Speaker 2: I can't please every person who travels on in New Zealand. 449 00:23:55,320 --> 00:23:57,720 Speaker 2: Madison A try, but I can't. 450 00:23:58,000 --> 00:24:00,320 Speaker 1: What does it feel like to run an airline that 451 00:24:00,400 --> 00:24:05,000 Speaker 1: everyone thinks can run better than you can? Stay tuned 452 00:24:05,040 --> 00:24:06,440 Speaker 1: for part two next week.