From the archives: Air New Zealand made a record profit at the time it was under chief executive Christopher Luxon. As Parliament resumes, with Luxon now Prime Minister, we look back to this 2016 feature from the Listener archives, where he discusses with Guyon Espiner how his financial and moral compass guided an airline that’s so important to New Zealand’s economic success.
God-fearing man from Christchurch named Christopher performs something close to a daily miracle: his airline makes money from the furthest reaches of the earth.
Not only has Christopher Luxon made Air New Zealand money, he’s also delivered a record profit of $327 million and shared the wealth. It’s not quite dividing the loaves and the fishes but 8000 unionised staff received a $1400 bonus in 2015 and will do so again if the success continues.
Coming of age in the late 1980s and witnessing the wreckage of the first faltering steps of the unshackled New Zealand economy, Luxon divined he would be a moral force in business. Making money was important but so was doing good – hence his bent for profit-sharing and sustainability.
But three years into his tenure as chief executive, the skies are darkening with competition. Swooping in are operators from Australia, Asia and the Middle East, all trying to sink the fortunes of the national carrier.
And then there’s the pesky problem of uppity Wellington. Civic leaders are pushing ahead with a $300 million plan to extend Wellington Airport’s runway to service long-haul flights. Luxon is strongly opposed, fearing Air New Zealand may have to help pay for a white elephant. He’s warning that those extra costs could put more of the airline’s already pared-back regional routes at risk. There’s a lot to keep the 45-year-old father of two awake at night. But he insists he sleeps soundly, if only for five hours a night.
Understanding customers
Luxon travels the world meeting people who can’t believe his airline prospers. “People say to me, we don’t know why you exist. There are no countries with 4.5 million people that even have an airline. How do you survive?” Back home it’s almost the opposite. “There has been a lot of talk about our profitability and sometimes in New Zealand you almost have to apologise for making money,” Luxon says.
“It’s not good when you lose money, it’s not good when you make money.”
Air New Zealand has experienced both. The nadir came in 2001 when it was bailed out by the Government to the tune of $885 million. It’s one of the few airlines in the world to be profitable every year since, in an industry with staggering capital costs.
A new turbo prop plane for regional New Zealand travel costs $25 million; every plane flying between Auckland and Wellington is worth $50 million and a new long-haul Dreamliner is $200 million. So how has Air New Zealand turned in record profits?
Certainly the plunging oil price – under $US35 a barrel now compared with $US100 between 2008 and 2014 - has helped.
Luxon told a parliamentary select committee in January that falling fuel prices puts downward pressure on domestic and international airfares - creating a direct benefit for passengers. Air New Zealand has lifted its capacity by more than 10% and added new routes - including direct flights to Buenos Aires, Houston and Ho Chi Minh City.
However, Luxon says the company’s success is not just due to lower fuel prices.
In sales terms, Air New Zealand is growing at about 12% a year.
“That’s a function of us getting very expert at understanding customers and working out how to bring them in and a lot of that comes from my old FMCG background.”
We’ll get to his past in the cut-throat world of international “fast-moving consumer goods” (FMCG) soon, but it’s here that his background starts to come through.
There are similarities with John Key. Grew up in Christchurch. Married early and stayed married. Has a son and a daughter. Made it big in business overseas and returned to a top job. Wants the silver fern on the flag.
He’s relaxed and informal and doesn’t try to assert his authority. He has a lose style of speech and comes across as an Everyman, but when the game face comes on he has a striking ability to marshal the data and has a child-like love of the pursuit.
“You rock into a market like the US,” he says, setting out his battle plan. “There are 315 million people sitting there - 100 million with passports. Now, 30 million of them have told us, I saw Flight of the Conchords. I’ve seen The Hobbit. I’ve had a friend go fly fishing. I’ve got New Zealand on my bucket list of places I want to go visit.”
Out of the 30 million people “considering the brand”, 250,000 came to New Zealand last year.
“That was a great number and a 13% improvement on the year before. But that is just a market development opportunity. That’s no different from how you think about unlocking markets and building businesses in foreign markets.”
For airlines, foreign markets can be a graveyard. When Luxon took over, Air New Zealand was making money domestically but not overseas.
“We were losing up to $2 million a week flying internationally when I started.”
What is it now?
“I won’t tell you for commercial reasons but suffice to say we are profitable internationally now.”
“Think about that. Losing $2 million a week. How on earth did he turn that around? Simple.
“Just by going through the basics of good business sense.”
Basics? Well take China, he says, Air New Zealand has been in China nearly 10 years and only just started making money. An unexpected secret turned out to be a game show. One of the biggest TV shows in China is If You’re the One. Some 50 million people a night tune in to watch one guy trying to charm a date out of 24 women. Air New Zealand managed to get a steward on the show, but the real coup was getting it filmed here as part of an aggressive new pitch to rich, young Chinese.
“Chinese visitors are up 30% to this country, but their spending is up 60% because we’ve got more value than volume.”
Of course that is good for New Zealand tourism too and, when you think about it, that’s really the industry Air New Zealand is in. It’s also another reason it’s doing so well. Tourism is booming with a record 3.1 million visitors in 2015, up 10% on the previous year.
Luxon is scathing of recent tourism strategy, saying up until about four years ago it was fragmented and messy.
“At our worst we’ve been quite bombastic, petty and individualistic. We go off overseas and we do our own thing willy-nilly but we don’t have any scale or cut-through.”
A group of private sector chief executives came together to sort it out. “’We’re not interested in government-mandated tourism plans, he says. “We need to take responsibility as a group of leaders and, actually, we wrote out our own private- sector growth plan for the tourism industry.” Air New Zealand, which brings about 40% of tourists here, now pools marketing funds with Tourism New Zealand.
“In my old life, I probably spent $500 million advertising Dove to Americans,” Luxon says of his career with Unilever, the consumer goods company that owns more than 400 big-name brands.
“New Zealand, with all of our tourism businesses combined doesn’t spend anything near $500 million on marketing. So how do we stand out against a bog-standard soap brand called Dove?”
Innovation. Collaboration. Brand building. Pick your buzz word. but it comes down to being clever and squeezing a marketing opportunity out of everything. Is it a safety video or an ad? Yes. Is it an online recruitment ad for cabin crew or a promotion for Air New Zealand? Yes. Luxon cut his teeth on this stuff.
“My background is as a brand manager and a marketer. That’s what I did at Unilever and built my career doing.”
The safety videos are loved and loathed, including by the staff.
“We all have the ones we love and hate,” he says.
“The point is they are getting talked about so when we rock into North America with those 300 million people and Matt Lauer on The Today Show shows your safety video, you get earned media rather than paid media.
And then there is bad media. Air New Zealand loves to be loved - Luxon proudly notes that 400,000 visited Te Papa’s 75th anniversary exhibition of Air New Zealand, which is now running at Auckland Museum - and is very sensitive to bad PR. So cutting and running from Whakatane, Kaitaia and Westport was poison. Luxon’s defence is now well-honed.
“We service 100% of towns of 20,000 people or more,” he argues, claiming the next best regional coverage is Australia with flights to 56% of towns of 20,000-plus.
In the end it came down to money. “We lost $1 million a month, every month, for three years in a row.”
Importantly, he says there will be no going back. “The Air New Zealand of old may have waited for a local guy to start up and then stepped back in and stomped all over them. That’s not going to happen. We’re done. We’re out of these places. We couldn’t make it work.”
Luxon says the company gave the ground-handling equipment and the route data to the new operators.
“It is painful for those communities but we haven’t been able to make it work. We wish the new carriers all the best and by giving them the certainty that we’re not coming back, that helps move things on.”
Will there be further retrenchment in the regions? “I can’t say, but there are no active plans to do so,” he says, leaving himself plenty of wriggle room.
Ironically, it’s the expansion ambitions of Wellington Airport that Luxon says could put pressure on other Air New Zealand regional routes. The $300 million-plan to extend the runway is strongly opposed by Air New Zealand.
Luxon claims the airline economics simply don’t add up. He argues that setting up a daily, direct service from a New Zealand city to another city in the Pacific Rim region costs $300 million for two wide-bodied aircraft. The two aircraft cost $150 million a year to operate. Thev add 200,000 new seats, but 80% of the seats have to be sold on every flight to break even.
“Even in Auckland over the past five years we’ve had five airlines come and go. They are challenging economics,” he says.
“That hasn’t really entered the debate. People have said, well, if we build this runway surely these airlines will decide to come here. There are enough white-elephant airports around the world to show that doesn’t necessarily happen.”
Air New Zealand is worried that landing charges will be increased to pay for the project. “At that point that puts at risk Gisborne to Wellington, Napier to Wellington, some of those services, because when you are losing $26 per flight, per passenger, it stacks up.”
Or maybe he’s just scared of the competition? Wellington’s expansion plans aim to attract newcomers at a time when cheap oil is already fuelling the ambitions of Air New Zealand’s competitors. American Airlines plans to start flying between Auckland and Los Angeles this year. AirAsia X is promising cut-price fares from Auckland. Middle Eastern carrier Qatar Airways is eyeing routes between Doha and Auckland.
Domestically, Jetstar is adding regional routes from Nelson, Napier, New Plymouth and Palmerston North. Luxon claims to welcome the competition and moves into bravado when it’s raised. “Having come from a world of Proctor & Gamble versus Unilever, that’s a much more intense, competitive dynamic than what we face in aviation, with all due respect.”
Besides, he says, Air New Zealand is used to it.
“We’ve got more Chinese carriers coming in than we’ve ever had before. We’ve had American carriers in here before as well and they’ve come and gone, so we know how to compete. We are really Kiwi - smart and feisty and street-smart.”
He’s not above some clichéd patriotism and gets in a dig at the Aussies for good measure. “Jetstar has been here six years. They have been unprofitable for all that time until just this last year with some benefits of (cheap] fuel,” he says.
“That’s an organisation that is four times larger than Air New Zealand when you take in the total Qantas group. They have lots of cash and lots of ambition and so we have to be really smart to be competitive against that.”
Family first
The striking thing about Luxon’s CV is the corporate monogamy. Unlike other top chief executives there is no succession of short-term flings in a bid to scale the glass tower. He spent 18 years at Unilever because that one company provided many opportunities. “I could work in businesses that needed turnarounds or realignment. I could work with start-ups and then I could work in sales, marketing, operations or general management.”
And he could work all over the world. Luxon spent 16 of those 18 years overseas, including Sydney, London, Chicago, Toronto and New York.
Not bad for a boy from Bishopdale in Christchurch. Christopher was the oldest of three boys and went to a small Catholic school, Loreto College.
His father was a sales rep at Johnson & Johnson and when appointed national sales manager he took the family to Auckland. Christopher moved back to do his last three years of secondary school at Christchurch Boys High School.
“On the weekends my rule is for my kids not to see me with the phone.”
He was the first in his family to go to university, completing a Masters of Commerce at Canterbury.
He met his wife, Amanda, at a church youth group when they were 15. She was at Riccarton High School. They started dating at 19 and married at 23. She became a teacher.
“Being a successful CEO is one thing and a lot of people react to me by what I do rather than who I am, but actually being a great husband and a dad is really important stuff.”
Important enough to make lots of time for. “I have had pretty extreme jobs. In my old life I travelled a lot more than I do today. We’ve just built disciplines and routines with the kids.
“So I have father-son and father-daughter time and Amanda and I have date night on a Saturday night.”
He works long hours - “I’m a five hours of sleep a night kinda guy” - but not weekends.
“On the weekends my rule is for my kids not to see me with the phone,” he says.
“When I am watching soccer, I am watching soccer. I am fully engaged. I’m not trying to multi-task because they see that and they think Dad isn’t fully present.”
Church is a regular fixture.
“Faith has been a big part of my life for a long time. Being a Christian just gives me a lot of centrality and a lot of purpose.” Throughout my interview with him, he talks about the importance of morality in business, but that presents problems given aviation’s contribution to climate change.
“There is no hiding from the fact that we are a big consumer of hydro-carbons and we do contribute 2-4% of global greenhouse gas emissions,” Luxon says.
“The world is going to have to set a price on carbon whether it likes it or not.
“It sounds odd as an airline guy saying that, but it’s the reality and I’d sooner deal with that reality now and get our business organised.”
There is no biofuel solution in sight so efforts are focused on fuel efficiency.
“Every year we have achieved about 1.5% fuel efficiency just by getting smarter about how we run our aircraft: taxiing on one engine, optimising flight paths – little things that when added up make a big difference.”
He says “cool things” are happening in sustainability. He’s talking to iwi with land that needs regeneration. Air New Zealand could pay to plant forests, gain carbon credits, improve the land and increase tourism potential.
It seems a typical Luxon response. Presented with a problem, he’ll collaborate, innovate and find a solution with “layered benefits” - and make a few bob along the way.
As a teenager he knew he wanted to be a businessman even if he didn’t like much about what businesses were doing in the 1980S.
“What you saw were lots of wheeler-dealer types and lots of failed property developers. Anyone can make money doing a deal and a transaction.
“But how do you actually build a company that is enduring, sustainable and makes a contribution?”
We’re back to being a force for good. So ultimately he’s is driven by morality?
“Yes. I am.” he says. “I am a big believer that you have to get connected to a mission and a purpose bigger than yourself.
“Running a successful Air New Zealand is interesting, but an Air New Zealand hooked up to a mission and a purpose of helping this country to succeed is a much more compelling reason to get out of bed in the morning.”
This story was first published in the February 20, 2016 edition of the New Zealand Listener.
