Air NZ's big birds stretching their wings

The airline is spending hundreds of millions of dollars opening up long-haul routes to new destinations this year. Photo / Brett Phibbs

National carrier spending hundreds of millions of dollars opening up long-haul routes to new destinations.

Air New Zealand's chief of sales and revenue Cam Wallace has a big challenge ahead - hundreds of thousands of extra seats to fill.

The airline is spending hundreds of millions of dollars opening up long-haul routes to new destinations this year - Houston and Buenos Aires - and has revived its Singapore route.

Wallace said growth of around 14 per cent this year on top of 10 per cent expansion in 2014 had introduced new challenges.

"The business is under some pressure because we've got a lot on," Wallace said. "The key risk for us is that we don't execute this. For us there's a level of complexity that comes from long-haul routes - we have to move people offshore selling New Zealand and Air New Zealand."

Managing markets and distribution this year would be fundamentally different to the airline's approach when there was little or no growth.

"One of the things I've talked to the team about is when we move into a new market and execute this - let's say Argentina - is that we don't lose our focus on other ones such as Singapore," he said. "It's making sure that we have a single focus on making sure it is stable, profitable and then move on to the next."

Wallace was appointed chief sales and commercial officer in January last year. He has responsibility for managing over $4.7 billion of the group's passenger and cargo revenue.

There are about 1000 staff in the sales and revenue area and a further 50 would be added overseas this year working in separate teams in different markets.

"As the business becomes better balanced between long-haul flying and short-haul flying - more of our growth is coming from long-haul which is good for the country and tourism."

Air New Zealand was now using a Boeing 787 Dreamliner into Tokyo and Shanghai where it would face competition from China Eastern Airlines which is expanding with new services into Auckland.

"We're comfortable with our market position and we have a relatively mature business in China. I would be less confident if we had the 767 going there."

On its domestic network Air New Zealand is adding about 455,000 extra seats on main trunk routes and thousands more on regional services. Wallace said the airline was also fortifying its position at the corporate end of the domestic market to repel any competitive threat.

Across the Tasman Qantas had had its advantage in the business and government travel market eroded by Virgin Australia.

"We want to make sure that the big end of town actively wants to support us because we've got the right product, the right price and the right relationships. What we don't want is the market waiting for a revitalised or rebadged competitor coming in," Wallace said.

In all markets the airline would build on improved relationships with travel agents to stimulate demand, he said.

Salt Funds managing director Paul Harrison said Singapore was easier to understand from a revenue perspective because it was an existing alliance but the other two routes would be different.

"It is a bigger task for them to develop those routes. I think they're logical additions for Air New Zealand but with these one may turn out to be better than the other."

I think for the industry it's a great early indicator that this year we are set to create another record for travel.

House of Travel commercial director Brent Thomas

Flight Centre managing director Chris Grieve said Air New Zealand would have to create additional demand. The three times a week entry into Buenos Aires was a cautious start but the route had pedigree here. Aerolineas flew the route to Auckland and to Sydney until it withdrew within the past three years.

He said the Houston route was partly a defensive move.

"Houston from a business point of view was logical and if Air New Zealand hadn't done it themselves someone like American [Airlines] would have done it for them."

House of Travel commercial director Brent Thomas said holiday and visiting friends and relatives traffic was growing at around 11 per cent this year.

"I think for the industry it's a great early indicator that this year we are set to create another record for travel."

Some of this increase was attributable to rising interest in the Pacific Rim where Singapore was a great destination in its own right but also Southeast Asia and India.

The new service to Buenos Aires would help propel South America to what he expected to be the fastest growing market next year.

"Buenos Aires is also on the Kiwi travellers bucket list and it will also appeal to the business traveller given New Zealand has so many connections in a number of fields with businesses in South America.

"The new Houston direct route opened up access to the East Coast from New England to Miami and I think Disney World near Orlando would come on to the radar.

"New Zealand travellers will also be able to fly from Houston to Europe so that means they'll have the ability to take in two continents in one trip."

The new routes

Singapore

Resuming flying in January was like starting a new route, said Wallace.

"When you leave a market for that period of time you realistically have to start again. You have to treat it as a brand new market entry."

While the return to Singapore was in its early stages load factors were meeting expectations, he said.

The Cricket World Cup had meant the passenger mix was different than expected. Understanding the demand for the feeder markets Singapore Airlines' subsidiary SilkAir flew in Southeast Asia would take some time. Although mainly leisure the route had a disproportionate premium weighting just because Air NZ and Singapore Airlines' cabins were similar in quality and Singapore was a very efficient stopover.

Air NZ was re-establishing links with Tourism New Zealand and NZTE to increase its investment in Singapore and rebuilt its brand presence.

The revenue sharing deal with Singapore Airlines allows the carriers to sell into each other's planes. The money goes into a consolidated fund and is shared at the end of a set period according to the number and type of seat sold on a pro-rata basis. Each airline is responsible for its own operating costs.

Buenos Aires

Wallace said Air NZ did a "very very thorough business case and we have a level of comfort both operationally and commercially across our alliances team that we've got the numbers right".

While there was instability in that part of the world the market would be underpinned by Australian, New Zealand and Argentine traffic.

The airline had hired an Air Canada veteran, Alex Obaditch, with extensive experience in Argentina to be general manager of the South America region.

It will also build a team of 15 staff in Argentina, which is large to support three flights a week but doing business there was "fundamentally different" to its other markets.

There were high taxes on travel, credit card payments in Argentina were made in instalments and airline websites had low penetration although there were many online travel agents. There was also a large number of small agents.

"We've had to be very flexible in the way we approach this and be quite pragmatic. We'll have more people in that market than any other that we would be familiar with. Nearly every element of the revenue process is fundamentally different," Wallace said.

There would be some Spanish speaking crew on flights. Chilean airline LAN is putting more capacity on its Auckland-Santiago route which Wallace said would help stimulate interest in the region and competition would result in better fares.

Houston

Wallace said the airline was well established in the North American market with flights already to Vancouver, San Francisco and Los Angeles as well as Hawaii. The airline had flown to Texas - Dallas-Fort Worth - during the late 1980s.

He said the sales team in Houston would aim at the oil and gas sector which could provide passengers for resource states across the Tasman such as Western Australia.

"We'll probably put disproportionate resources into the commercial and corporate side of the business."

About 55 per cent of traffic was likely to be inbound and the Houston hub was fed by Air New Zealand's Star Alliance partner United Airlines.

The area had a population of about six million people but the wider catchment would stretch to the eastern seaboard where there were a growing number of Americans keen on coming to New Zealand but deterred by a full transcontinental journey to Los Angeles and then the flight here.

"We have no problems with people wanting to come to New Zealand but it was a matter of getting them on board across the Pacific."

The airline was still researching what attractions in the Houston and wider area would be of interest to Kiwi travellers. Tourism NZ said the new route was "incredible news" for the New Zealand industry and could lead to meaningful and positive change in what is one of this country's tier-one prioritised markets.