Air New Zealand has announced a new joint venture with Air China between Beijing and Auckland. Photo / Brett Phibbs
Air New Zealand has announced a new joint venture with Air China between Beijing and Auckland. Photo / Brett Phibbs
Air NZ China Manager Nick Judd talks to Alexander Speirs about the prospects in China for our national carrier.
Air New Zealand's General Manager of China, Nick Judd, sat down with the Herald in Shanghai recently to explain how their new joint venture with Air China between Beijing and Auckland will work.
Judd likens the new joint ventures to other JVs the airline has with its Cathay Pacific andSingapore Airlines alliances.
"The key different to those two though, is that we're not flying our own planes on the route," he explains.
"How that will work is we'll help sell and distribute their services on the Beijing route and they'll do the same for the Shanghai service."
Air NZ notes there is no cargo component to the Air China alliance, so Air China will operate as a direct competitor to Air NZ Cargo on the new Beijing services.
"The deal opens up the opportunity for us with competitive pricing in the market, while both us and Air China can work together on our distribution strengths," Judd says.
"We'll bring a combined marketing and sales presence to the market, so ultimately the good thing for customers, is that we will sit down and try to align our products as much as we can."
The deal has been a long time in the making, with "on and off" discussions taking place between Air NZ and Air China for a number of years.
Real momentum started to pick up last year, with Air New Zealand eager to get a market presence back in Beijing after withdrawing from their Auckland-Beijing service in 2012.
We would love to be in a position where we are opening new routes in China, but that is still a little while away.
"The ability to work with an airline with the strengths and distribution reach of Air China and being able to get back into Beijing was an ideal situation for us," says Judd. "We would love to be in a position where we are opening new routes in China, but that is still a little while away."
Though Judd says the possibility of adding more destinations in China directly from New Zealand is not on the immediate radar, shifts in the market are making that possibility more attractive.
"Costs have come down significantly from a fuel perspective of late and if that lasts long term, it changes the dynamics of a number of routes that we look at and the cost structures associated with that.
"It opens up the possibility of destinations that potentially weren't profitable or sustainable previously, so there will be a number of destinations we will be looking at."
Continued growth in the Chinese market will likely have a strong influence on where those potential destinations may lie, as the number of services between New Zealand and China continues a steady trend upwards.
"The biggest thing at the moment coming out of China is the capacity growth, which continues to progress unabated," says Judd.
"If you look back 18 months ago, there were 14 flights a week between China and New Zealand - seven by China Southern and seven by Air New Zealand. Peaks this year could quite conceivably rise to 35 flights per week.
"The big question is whether this growth is sustainable. At the moment it seems that as soon as you put capacity on during the high season, it gets swallowed up - but will that carry on."
The other consideration says Judd, is the lack of suitable accommodation for Chinese tourists - particularly on the scale required if numbers continue to trend upwards. "We've already had quite a bit of feedback around Chinese New Year this year that people struggled to get hotel rooms.
"Then you overload a whole lot more capacity from China at a time when numbers are increasing from America and everywhere else - it could be very interesting through that peak period next year."
Judd says though reciprocal travel from New Zealand to China is growing, it's doing so at a far slower rate. "It's still rated for New Zealanders as a tougher destination and a bit of an unknown, so I think from a tourism perspective, you probably get people who are more open to travelling.
"The bulk of the people coming from New Zealand at present are those coming to visit friends and relatives in China."
Stimulating growth on both ends will remain important, as Air NZ works with the likes of Tourism NZ to promote New Zealand as a destination.
The scale of the opportunity coming out of China is of course much larger, and at a time of huge growth in demand for international tourism.
"There were between 100 and 120 million Chinese that travelled overseas last year - most of that was to Southeast Asia and Hong Kong.
That base is growing by more than a million tourists every year, so you've got a different catchment population than we had a few years ago, because the market has grown so dramatically."
• 3.5m kg in air freight sent by Air NZ to to China annually.
• 5m kg carried out of China to all destinations of which more than
• 3m kg terminates for New Zealand.
• 23 per cent increase in air freight carried on Air NZ services to China in the year to date and
• 19 per cent from China, compared to last year.
Commodity Split: Much of the air freight carried on Air NZ to China is seafood (lobsters) and dairy products. From China, air freight is classified as "general freight", made up of electronics and garments.
Air New Zealand chief executive Christopher Luxon says bringing in extended visas for visitors between China and New Zealand is the "biggest thing in the tourism space".
At the 2014 Beijing Apec meeting, presidents Xi Jinping and Barack Obama unveiled their intention to extend the validity of visas for Chinese entering the United States, and conversely, for up to 10 years. Although the duration period of each stay does not change, the overall visa application fees that regular travellers would otherwise face for multiple visits over a 10-year period is markedly reduced.
Christopher Luxon. Photo / Paul Taylor
Luxon observes that this gives the US a considerable competitive advantage when it comes to the rapidly-growing Chinese tourism market.
He suggests that New Zealand and Australia could also look at the possibility of a joint Australasian Visa - such as used for the ICC World Cricket Cup - because there are so many visitors moving between both markets.
He is upbeat about the potential for the Chinese tourism market.
"We have turned the taps of tourism on quite dramatically which is really great," he says. "But we are running into infrastructure issues and customer service and experience issues in New Zealand."
He cautions that the tourist industry needs to make sure it is not taking the Chinese market for granted when it comes setting expectations to attract premium visitors.
"The experience has to match the expectation for these visitors otherwise they will choose Croatia, Austria, Thailand or somewhere else to go."
From Air NZ's perspective, the airline intends to keep on evolving its customer service and is heading (for the first time) with a lot of spill into the shoulder season. Luxon notes that though this is good from a capacity planning point of view, New Zealand was basically out of accommodation across the country at the recent peak period. He says the bigger question facing tourism on the China front is one of value over volume.
The industry has to work hard to attract more higher yield premium customers.
"The average Chinese visitor spends two times what an American tourist does once they are in the country."
He underlines the point that the NZ tourism infrastructure investments will not support a five-fold increase in growth from the Chinese market. But the industry is stepping up to support a two-fold increase through higher yields.
Air NZ already has a daily two-way service between Auckland and Shanghai. But it's also packing on more revenue growth by leveraging a significant increase in cargo capacity via new planes on the Shanghai route.
Says Luxon: "For me it's value over volume; finding the right yield and customers who can stay for longer and spend more money and disperse those benefits throughout the country better and more consistently; and keep the cargo and the trade flows moving."
