Air New Zealand boss Greg Foran: What's on his plate six months in

Air New Zealand chief executive Greg Foran joined the airline as the pandemic struck. Photo / Supplied

Six months after he started as Air New Zealand chief executive, here are some of the issues facing Greg Foran, as the airline hunkers down through the Covid-19 crisis.

Internal rumbles

Greg Foran started at the airline on February 3 and launched into a deep dive into the workings of what was then a high-functioning business. It was all part of what was meant to be a 100-day review.

But his start date was three days after the ominous announcement that Air NZ would reduce its Shanghai operations as the impact of the coronavirus began to make itself felt (there were then about 10,000 confirmed cases around the world).

Those early signs quickly cascaded into the worst economic crisis the airline industry has faced, and Air New Zealand's revenue and value plunged. Since then two of the airline's most senior executives have gone - abruptly - and another is easing his way out of the building.

Tension on the executive floor at the airline's Fanshawe St headquarters is said to be cuttable with an axe. Foran brings a hard-nosed North American management style to the job.

He's publicly philosophical about the wretched timing of taking the top job when he did, and making a clean sweep that has annoyed these key stakeholders (at the very least): the wider community, customers, shareholders, and what was a staff of 12,500. Already close to 4000 people have gone and more jobs are at risk as the airline looks to cut costs by a further $150 million.

Keeping those staff who remain as the contented Air New Zealanders the company was once famous for will be a mighty HR challenge - although one that's not unique to the airline.

Air New Zealand has suffered reputation damage as it struggled with customer inquiries. Photo / Alex Robertson

An angry public

Through the Government, taxpayers already own 52 per cent of the airline. If a high-interest backstop loan offer of $900m is taken up and converted to equity, they could own much more.

There's also that spiritual sense of ownership of an airline whose past campaigns have been great at playing on Kiwi heartstrings, encouraging them to fly on the national carrier ahead of overseas competitors.

With the precipitous changes to travel, there has also been an abrupt turn in public sentiment. That has seen the airline's corporate reputation take a dive, amid anger from the hundreds of thousands of people who were eligible only for a credit instead of a refund - most of whom couldn't contact the airline for months.

A new online system has eased the strain but at the peak, call centres were handling 75,000 cases a day - up from the usual 5000.

Up to two-thirds of the global fleet was grounded earlier this year. Photo / Steve Strike/Getty Images

The airline was slow to respond to a growing groundswell of anger. It was not helped by the relative normality that prevails in this country - due to the successful health response to date - which made some customers expect things to be largely as they were.

But this is a global pandemic killing up to 8500 people a day, which has closed down much of the world and at one stage paralysed up to 95 per cent of international air travel. Global capacity is not yet up to 50 per cent of last year's levels, meaning all airlines have let down their customers.

Operational changes at the stroke of a pen

Through increasingly tightly gritted teeth, Air New Zealand is changing its international schedule with a few hours' notice so as not to overload the Government's managed isolation programme.

It has extended a three-week suspension on new inbound international bookings until August 9 and taken pre-emptive action to avoid disrupting more customers by freezing new bookings to Australia until the end of the month as it anticipates tighter Australian government restrictions soon.

This makes it extremely difficult to run an airline as it faces what chief commercial and customer officer Cam Wallace calls this "unique unpredictability". He has largely been the public face of the airline's response during the Covid crisis and says it is now having "constructive discussions" about compensation with the Government.

In a reversal of normal, international passenger revenue is now the cream on top of freight. Forsyth Barr describes international passengers as a "rounding error" supported by the Government-sponsored cargo initiative, and that's likely to remain the case into next year.

The analysts calculate that passenger revenue in June was down 80 per cent on last year, an improvement on the May figure of a 90 per cent decline. Any compensation for the Government-ordered booking restrictions would be welcomed but the relationship with the Beehive is a delicate one to manage.

Many airports around the world have been near empty at times due to Covid-19. Photo / AP

Andrew Kirton, a one-time general secretary of the Labour Party, has shed his media relations responsibilities to manage Government relations fulltime as the airline picks its way through the timing and scale of its own capital raise and/or drawing on the $900m loan.

This country is far from alone in shifting the goalposts on travel. At the weekend, Britain at short notice imposed a self-isolation requirement on holidaymakers returning from Spain, throwing into chaos the plans of thousands of Brits and the airlines that carried them.

The unknown

Three words - "Shelter In Place" - could change attitudes to travel for years, especially to and from long-haul destinations such as New Zealand.

Nobody will want to be caught overseas in the middle of a global emergency again.
While part of running an airline is that you never know what is around the corner, Foran is in the hot seat when it's never been clearer that the unexpected can be very unpleasant.

He was quick to call an end to normal long-haul international operations until well into next year and has reflected the Government's caution on travel bubbles - they'll happen when they're safe.

The International Air Transport Association now says air travel will not return to pre-Covid levels until at least 2024 and the recovery this year has been slower than expected.

The competitive landscape will change markedly post-Covid and those airlines that can get their cost base and proposition right could climb out of the trough in reasonable shape.

Air New Zealand is likely to face fewer of its traditional rivals, but with a glut of aircraft parked up by broke airlines, the opportunity is there for disrupters - maybe tech giants or private equity firms - to move in.

Domestic travel has bounced back more strongly than expected. Photo / Grant Bradley

Whether they'll fly to New Zealand is another matter, but if they do they could provide more of the competition that Air New Zealand says it always welcomes - but it's a matter of degree.

The 100-day review of the airline has stretched out in light of the crisis but is still under way, with findings likely around the time Air NZ announces its annual result next month.

One ray of light

In a world of airline pain, Foran can take some satisfaction from Air New Zealand's domestic recovery exceeding expectations as the confidence to travel quickly returned, thanks to the absence of Covid-19 in the community and Kiwis being confined to taking their holidays at home.

The airline is maintaining school holiday capacity into August, at around 70 per cent compared to last year, and Forsyth Barr says demand appears robust considering the lack of international connectivity, which usually accounts for up to 20 per cent of domestic demand.

The demand is being led by leisure traffic but the higher-yielding business traffic is also recovering and is back to about 65 per cent compared to last year.

Forsyth Barr has now taken a more positive view on passenger yields and cargo revenue generation for the year ahead, which will trim anticipated losses.

The adverse impact of operating losses on the airline's net asset value is less severe than previously assumed, leading the firm to lift its target price to 90c a share this financial year from 80c. That target price is well below where the stock was trading today - $1.34.