Air New Zealand Limited

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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.

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).

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 get 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 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.

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.

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 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.