CEO INTERVIEWS
10/01/2013 - 00:00

The Petri Dish

Christopher Luxon, Air New Zealand CEO, says the carrier’s innovations could have positive implications across the industry

How is the airline performing?

Air New Zealand is doing exceptionally well. Commercially and operationally I think we are one of the best performing airlines in the world. That’s down to having very strong foundations in place. We are a very customer centric organization, have a good reputation, and we have a sound corporate structure. We are also an open culture, low on hierarchy, and very innovative with highly engaged people.

The challenge for us is how to take this forward, ensuring we stay competitive and relevant as we look to grow.

What are your priorities going forward?

We want to make our future happen, rather than have our future happen to us. The main priority is orientating the business around a Pacific Rim network that realizes growth in the Americas, Asia, and Australasia.

That fits with the reality that the world is experiencing a once in a generation shift of economic power from the Atlantic to the Pacific. And that is an incredibly exciting opportunity for us.
Along with that, we are partnering with our broader tourism industry to market New Zealand as a destination with connectivity to major markets with growth potential. The great thing about a smaller country is that all of the New Zealand tourism industry players can work together to accelerate market development – we call it “hunting in a pack”.

Would you say that your ambitions are global?

I think that we punch above our weight already. And, in line with our focus on the Pacific Rim, we are building our leadership talent so that the airline has a really good knowledge of its offshore markets.

My background is with Unilever where we did “global - local” market development very well. And aspects of that we are now replicating. For example, in China, we have a great local crew base and management team that understands the customers, the market and the government very well. New Zealand has a very positive relationship with China as we were the first country to sign a free trade agreement with China 5 years ago. I also see Air New Zealand playing a broader role in the industry. We are a smaller airline but we have great experience in the mature, sophisticated markets. I think we can be a great petri dish for the industry. If it works in New Zealand it can certainly work in Western Europe and North America.

What is your strategy to expand the reach of the airline?

Our main partners are in Star Alliance. Air New Zealand is committed to Star and the benefits that it brings to our customers, but we also need the flexibility to work with other airlines where there is no logical Star partner. For example we work very closely with Virgin Australia and Cathay Pacific on key routes. I think this will be a big issue for alliances moving forward. How do you protect the alliance yet also evolve to allow greater flexibility?

Is infrastructure in New Zealand helping you achieve aims?

The customer experience in New Zealand is very good and infinitely better than what I have experienced living in parts of North America and Europe. We work constructively together and the relationships are strong. There is, however, a fundamental disagreement on airport pricing. It is a real source of tension and has been for 20 years. Airports set their own prices as they see fit and we think that’s a big problem to solve with evolving regulation.

That ideal regime will encourage airlines and airports to sit around the table and hammer out a deal on commercial terms and with equal power. How are you using your consumer goods experience in the airline business? First, let me say it’s a privilege to join this industry.

The airlines compete fiercely with each other yet I have also experienced cross-industry cooperation to tackle major issues. Safety and the environment are two good examples.
I have also observed that there is a tremendous amount of activity and effort for very little return. There is far more profit in selling ice cream and that’s a lot easier to do!

In the consumer packaged goods world you are always thinking about the customer, about market segmentation, and about the sales channels. I have not seen the same level of sophistication around sales, market development, and distribution in general in the aviation industry. I have also been struck by how obsessed the industry is with the “uncontrollables,” such as fuel, macro-economics, natural disasters, and other crises. It’s all very interesting, but these things tend to happen to all airlines at the same time so it is more a question of your relative competitiveness in these moments.

Air New Zealand has good risk mitigation measures in place to buy us time to adapt to changing circumstances and then we rely on our superior speed and culture to respond better than our competitors. Good businesses react to the environment in which they are operating without making excuses.

But airlines can’t switch markets as easily as a consumer product. Are you surprised by the aviation regulatory structure?

The regulatory structure is frustrating and incredibly archaic. It does a great job on safety, but beyond that it does need some modernizing. The policy direction is to liberalize markets and we welcome that as we want to compete without externalities getting in the way.

Air New Zealand has a reputation for innovation in technology. What is on your agenda?

It’s all about leveraging technology to deliver a better customer experience for us. In other parts of the world, it takes about an hour to get through the various airport processes even for a very short flight. In New Zealand you need about 10 minutes. That’s because we’ve used technology well to enable customers to move seamlessly through the airport.  Mobile technology is where Air New Zealand wants to head. We embraced the technology early and we are thinking about all the customer touchpoints. There is a lot of work still to do though and we need to even better understand our customer.

Is the New Distribution Capability (NDC) project taking the industry in the right direction?

If you went outside of the industry to explain airline distribution they would think you are crazy. It is surreal to be governed by 40-year old systems. It doesn’t reward service or innovation. The result is the industry becomes commoditized and an airline gets boiled down to a logo, a fare, and a destination.

If you are a good airline doing the right thing—delivering a real value proposition to the customer—the system today denies you the opportunity to showcase that. Our experience with Skycouch proves the point. We sell it on our website and it has done so much better than we thought, but getting it distributed through our travel agent partners is a real struggle. To still be talking about a two or three cabin configuration in the modern age is just insane.

I understand there is some apprehension among our trade partners about the changes that NDCwill enable, but more modern distribution standards that evolve airline merchandizing capabilities will help us meet customer needs better and create opportunities across the travel industry. We need to have the courage to change or somebody else will come in and change it for us.

What is your view of the industry’s environmental efforts?

I was really encouraged by the IATA AGM resolution on carbon-neutral growth. It was a proactive and positive step forward. New Zealand’s natural environment is a big tourism asset and it is clearly in our interest to protect it as best we can. There is a social obligation to be a sustainable business and also an economic imperative to do so as well. That is why Air New Zealand aims to be the most environmentally sustainable airline in the world.

When you can connect good commercial performance with sustainability, it is a very powerful model for success. Air New Zealand flies some of the longest sectors in the world yet over each of the last six years we have improved fuel efficiency nearly 3% - double the industry’s 1.5% target.

Part of our success is the result of investment in new aircraft. We’ve also undertaken biofuel trials and worked with our partners in air traffic management in the ASPIRE program to create optimized flight paths that also create operational efficiencies. We also have about a third of our 11,000 employees signed up to our “Green Team” working with our Department of Conservation in national parks.

Where do you see Air New Zealand in five years?

The direction is set. We have our “Go Beyond” plan that is all about helping New Zealand supercharge its success and improve our commercial performance all the while taking the customer experience, marketplace execution, operational efficiency and the development of our people to the next level. It’s a very exciting time!

Find more information on Air New Zealand website.

THOUGHT LEADERSHIP

Our previous column, in which we highlighted our twenty-year market outlook, emphasized the rise of middle class consumers, the impact they will...

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