Airline Leader Interview | Air New Zealand

Transcript

Adrian Schofield:Thanks very much for that, Marco. Yes, we are very fortunate to have Air New Zealand CEO Greg Foran joining us today. I know many in the room probably know about Greg's background, but for those who aren't familiar, Greg took over as CEO at Air New Zealand in February 2020 After successfully leading the largest retail business in the United States for some years. No sooner had Greg got his feet under the desk at Air New Zealand when the global pandemic arrived. Obviously a pretty tough baptism of fire into the airline industry, but I think by any measure Greg has led Air New Zealand very well through the pandemic and also through some of the new challenges that have emerged in the post-pandemic period. So anyway, welcome, Greg, and thank you for joining us.

Greg Foran:Thank you. Thank you. You know, I didn't have any grey hair before I started in the airline business, Adrian. It was jet black and fantastic. But starting at the time the pandemic started, it sure has been quite a baptism of fire.

Adrian Schofield:Oh, I'm sure. Yeah. Yeah. Well, you're still doing better than I am.

Greg Foran:So.

Adrian Schofield:I thought perhaps, you know, there's a lot of ground to cover, so perhaps if we could start with some of the more recent news, which is the very impressive annual profit that you've announced quite recently. And I've heard you talking about the importance of that profit to the airline, so I'm wondering if you could just talk about that. And also, I'm curious to know, is this as good as it gets for the airline industry in terms of profitability? Or are higher profits sustainable now?

Greg Foran:You know, first of all, I'd say it is good to be back standing on your own 2 feet. No one likes running a business which is losing money, and we lost, you know, over a couple of years about $1.2 billion. And the reason it's important to make money is that it gives you a chance to go and invest, and whether it's buying ground service equipment or looking at wages and you know, buying new aircraft, you need to be able to generate a return. So good to be back on our own 2 feet, good to have repaid our debts, good to have a healthy balance sheet. In terms of, you know, how I feel about the future, I would say to you that I sort of feel like there's been 3 acts that we've had to cycle our way through. You know, Act 1, was survive COVID. And I don't think that applied just to Air New Zealand. I think it applied to, to many of the travel businesses. So tick, I think we've survived that. Act 2, enjoy the recovery. And I think in a lot of cases we have been able to enjoy the recovery. It's been pretty tough. I think restarting an airline is much harder than shutting one down, and we've all had to learn new tricks to restart it. And I wouldn't say we've necessarily got on top of everything yet, but let's give it a tick. We've enjoyed the recovery. I think the third act, which is actually more difficult and likely longer than the previous two, is how do you now sustain that performance into what I see as quite interesting headwinds? And I think it's going to be difficult. I'm not smart enough to really even tell you what I think this thing looks like in 6 months' time, certainly not a year's time, because so many things are changing. You know, just the price of oil has changed from $90 to $123 in a matter of about 10 or 12 weeks. So I'm not smart enough to be able to answer, is this as good as it gets? What I do know is is part of the challenge that we give ourselves at Air New Zealand is how do you sustain this performance knowing that there are some headwinds? Right, great, okay.

Adrian Schofield:Talking about demand, are you starting to see demand and yields easing back a little bit now, both in the international and the domestic sectors?

Greg Foran:You know, it's a, once again, another interesting period that we've gone through. You know, we New Zealand got about 4 weeks' notice to get the Tasman up and running, and then we had another 2 weeks to get what we call our visa waiver countries up and running. So for literally a year, it's been, you know, trying to run as fast as you can, get as many planes back, get as many pilots back, get as many cabin crew trained. And so we've been flat out doing that. And now we've got everything back, I think it's fair to say that we are seeing that, you know, the demand is not quite as strong as what it was. It's not like it's fallen off, but we've had this incredibly good period where demand has exceeded supply. And, you know, frankly, most airlines have benefited from that and delivered very good profits. The key is what did you do during that period in terms of addressing a whole bunch of things in your business so that you, you strengthen your platform? But I think it's fair to say it's not quite as robust as it was, but that doesn't mean that it's going to alter significantly. I did get a piece of advice before I took the job. I got 2 good pieces of advice. One of them was, be bold in thought but cautious in deed. And, you know, that's held me in good stead certainly in a new industry and a new role. It's good to be bold in thought, we can do all these things, but just be a little bit cautious about how much you think you can do. And then the second one is always get ready for the next sideswipe. And haven't I learnt that one? Because literally almost every week, certainly every month, there is some sideswipe that despite all your best planning comes and gets you and you have to You have to learn out how to deal with that.

Adrian Schofield:Right, yeah, exactly. Further on demand, I guess it sounds like we're seeing that revenge travel surge that we saw post-pandemic that's starting to sort of work its way through and starting to ease off. Would that be a fair assessment?

Greg Foran:Oh, look, I think there's a little bit of that, but I also think that some of that is getting replaced by people who are still wanting to get out there and go on their holidays. You know, looking at the corporate market has been interesting. It hasn't come back completely. I think we can all understand the reasons for that around, particularly at the top end of town, a combination of businesses seriously trying to hit sustainability goals along with having a look at the savings they made in their P&L when, when the industry was effectively shut down. So that hasn't come back completely. People who had to visit Nana and Granddad and uncles and aunts, we've seen that play through. But increasingly I see people still wanting to go on holiday. And particularly small, medium businesses wanting to connect in probably increasing numbers. So It's there or thereabouts, definitely different. And, you know, we all have to learn to deal with that.

Adrian Schofield:Right, yeah. And that sort of leads into something else I wanted to ask you about, about whether there's been, to what extent there's been a structural shift in demand in the post-pandemic period. Like, obviously leisure travel is right up, but is, are you seeing business travel down a little bit with some of these new ways of doing business that, and businesses talking to each other emerging?

Greg Foran:Look, I think we're seeing a combination of things, and it's, it's not necessarily one thing. I think it's, it's multiple aspects that are playing out. But I know that if my colleague LG was sitting up here, she would say probably the biggest change that we've seen is that people who used to book later, there's less of those occurring just at the moment.

Adrian Schofield:Right.

Greg Foran:Now, could be all kinds of reasons for that, but that's probably the thing that we see. But gee, it is different, isn't it? You know, the costs that have come into our industry, the— what's that done to fares, the capacity changes that are occurring. You know, I reflect on just one route that we fly, which is Auckland-LA, and it's a good route for us. You know, we'd probably seen Laila, I don't know, 14, 16 services a week on that route. I think we get to the 1st of November and there's 28. And I think I worked out the other day, that's 10,000 more seats a week. Have I got that right?

Adrian Schofield:Yeah.

Greg Foran:Boy, that's a lot of seats, isn't it? So I'm guessing that's going to cause a few interesting scenarios for us all, particularly when the price of fuel is quite high on that particular route. What's interesting about that is, is that you wouldn't necessarily have predicted that was going to occur. And we didn't see it coming. It's come. We'll deal with it because you have to. But probably, and I'm— this is a hypothesis, it may be one of the things that's driving that is, you know, we're currently doing more services between Auckland and Shanghai than United, for example, who I think are 10 times our size. We do more services per week than what they do. We're doing daily. I think they're doing either 3 or 4.

Adrian Schofield:Right.

Greg Foran:So that will change. It's probably not going to change overnight. That might take a while because there's geopolitical things at play there. So It's just a different abnormal that we're all dealing with and you've got to adapt.

Adrian Schofield:Right, okay. Speaking of adapting, looking at some of the post-pandemic recovery challenges the industry have gone through, you know, supply chain, workforce, baggage, all sorts of things like that. I know that a lot of that sort of thing really peaked last year, but are you still seeing challenges in some of those areas?

Greg Foran:Yes, I am. And, you know, one of the things that, as you've identified, I'm not the aviation expert because I just haven't done it before. You know, I was sitting in a meeting a few months ago and someone started referring to something called MELs. So boy, there's plenty of acronyms. There's plenty of acronyms in retail, I might add, but I think aviation beats retail for acronyms. So minimum equipment list. These are the bits that are missing off planes that don't stop you flying necessarily, but you've only got a certain amount of time before you get it fixed before you do stick the plane on the ground. And as I've started to delve into that, I've found a myriad of issues. We are all reasonably aware of Boeing with what it's got to do. And they're still making, I think, around about Dreamliners a month and, you know, they've got to get that up to 6 and 8 and 12 and whatever. But it's hard to get that restarted. Airbus are doing better, but, you know, they've got their challenges. Rolls-Royce, you know, Pratt Whitney. But it's when you start digging in deeper and you start talking to some of the suppliers who supply them that you start to understand the challenge of it. So trying to get something like an actuator, which is a really important piece of equipment on our business class seats that allows the bed to go flat, to lie flat. Well, you know, the supplier who made those things has gone bust during COVID So everyone's running around trying to work out how to get that restarted. And that is playing out over literally thousands of suppliers.

Adrian Schofield:Yeah.

Greg Foran:I don't see this playing out in some of the other industries. You know, I don't walk into a supermarket and see that Kellogg's still can't get on top of Corn Flakes or, you know, Cadbury aren't making chocolate. But in the aviation business, what I'm seeing is that it's much clunkier and more difficult to get restarted. And I don't think it's going to get fixed for a reasonably significant period. I don't see it fixed, for example, in a year's time. It'll be better, but it's complex and there's more to do. And that puts a little bit of pressure on everyone in the system.

Adrian Schofield:Right. And on that topic, the Pratt Whitney engine issue, big deal for airlines, many airlines around the world, big deal for you because you have those engines in your fleet.

Greg Foran:How—

Adrian Schofield:and I know there's been even this week, there's been another A lot of bad news coming out about that. How is that affecting you operationally and from a planning perspective?

Greg Foran:Well, as I reflect on that and when I became aware of it, that phrase, get ready for the next sideswipe, you know, comes to mind because that's what you have to do. You've just got to say, all right, well, this is something which is not directly, you know, in our control. We've got to deal with the fact that that these particular engines are going to come off wing after sort of circa 3,000 cycles instead of 12,000 cycles. So once again, I have to put that in my own speak. It's a bit like sort of buying a car and expecting it to only take it to the garage once a year, but now I actually have to take it, you know, 4 times a year. And there aren't that many garages and there aren't that many mechanics.

Adrian Schofield:Mm-hmm.

Greg Foran:So I'm probably now stuck in a queue behind 50 other people who are waiting for their car to get serviced before I can start driving. So, all right, what are we going to, what are we going to do about it? We don't have an answer for that one yet because we've got to sit down and get the details, but we'll work it out. We'll make sure as we do this we take into account all stakeholders. We've got to do what's right for our customers and our staff and making sure we're flying to the areas that we need to and And importantly, support Pratt Whitney. You know, this is something they didn't want to have happen, but it has. And so how do we work with everyone now to solve it? Right. Okay.

Adrian Schofield:Just very quickly, I've heard you speak about this also, but call centre wait times, are they now sort of at a point where you'd like to see them again?

Greg Foran:I think we've made a lot of progress. I'd also say that I think quite Rightly, the expectation from the customer has actually increased over the years rather than decreased. So maybe it was acceptable a few years ago not to answer emails quickly, and by quickly I mean same day, or maybe you would say it's good if I can get my average wait time for calls down to 6 minutes, which is actually what we're at at the moment. I would say to you that I think the expectation of customers changes and we have to live with that.

Adrian Schofield:Right.

Greg Foran:So I'll give you a retail example. You know, a number of years ago when online shopping came on board, you could sort of think it was okay to maybe sign up to Amazon Prime and order from a range, an assortment, and get a delivery in maybe 3 or 4 days. And then it became next day. Actually, a lot of people now try and do it within 1 hour. Now you pay for it, but the expectation of customers isn't to go backwards, it's to go forward. So I'm happy with the progress we've made with our, with our call centre, and to all our team who have done that, they have worked diligently to do that. But my view is that the customer's expectation continues to increase. So tech, we've got it down to 6 minutes. I think we win when we can basically answer just about every call within a minute.

Adrian Schofield:Right.

Greg Foran:Now you can't do that by just throwing lots of people at it. It's a combination of things. One of the things you've got to do is to work out how do I reduce the amount of people ringing the call centre, and that's about creating a self-service solution so I don't have to call. And that's something that we've been working hard on. So we've actually have gone agile in Air New Zealand. Big brave thing to do as you're restarting the airline, but I think being brave is an important characteristic in any business that wants to be successful. And that allows us to, to now attack some problems. So for example, the call centre, something that the team have been able to do in the last 13 weeks is how to take out 200,000 calls annually out of the call centre by changing a number of things in the app so customers can self-serve. And that 200,000 calls works out to be about 5 weeks' worth. They now have a challenge to do that again in the next quarterly cycle. And I think they'll do it. Great.

Adrian Schofield:Okay, turning to some of the market questions, looking at the Tasman market, very important for airlines in New Zealand and Australia obviously. How is demand looking on the Tasman and how is the reduced competition, mainly from the absence of Virgin Australia, affecting Air New Zealand?

Greg Foran:Yeah, so as you mentioned, I had this sort of bizarre entry, didn't I, into this industry where on the day I started we stopped flying to Shanghai, 6 weeks later we're not flying anywhere. And as I began to learn the business, I found out that the Tasman is quite a battleground for airlines. And we have these periods where it's really good and then periods where it's really tough. And it's quite simply down to the amount of competition you have flying on the on the air on, on that particular route. So I think last year was about as good as it gets. You know, Jack Nicholson, it just doesn't get any better than this. It was fantastic.

Adrian Schofield:From a New Zealand perspective, you mean? Oh yeah, yeah.

Greg Foran:You know, there's not a lot of competition, there's high demand, lots of family and friends. So, so that was great. It's going to be tougher this year, and that's exactly what we're seeing. And And, you know, I came over last night and the plane was full, which was great. But as I look at the load factors generally, they're not quite as strong as what they were last year. The fares aren't going to be quite as robust as what they were last year. And that's only natural because, A, there's a few more places that people are flying, but B, there is going to be increasing competition coming on there.

Adrian Schofield:Right.

Greg Foran:So it's sort of what we're seeing, and that isn't unexpected.

Adrian Schofield:Right. In the long-haul markets, you touched on this, but there's a flood of new flights and new capacity coming into the US market to Australasia in general and, you know, to New Zealand in particular. How's that going to affect Air New Zealand, and what sort of response steps can you take for that?

Greg Foran:Well, I'd be quite keen if you happen to know Xi Jinping, if you could ring him up and just get him to open up China a little bit quicker, particularly in the US, that might take a bit of pressure off. But yeah, look, we're seeing plenty of, of capacity coming our way. And at the end of the day, what that's going to do is to bring prices down. They've been, they've been, you know, very healthy. let's be fair, healthier coming in than what they are going out. There's quite a difference actually between, between, you know, people that are buying a fare from New Zealand to the United States versus the United States to New Zealand. But I think we're going to see a situation where probably, and I am no futurist, all, all I was able to prove to myself during the last 3 years is that I I am reasonably hopeless at forecasting. But my sense is that it's going to get pretty sporty there for a while. And then people will start to regulate the amount of capacity they have in there and probably it will calm down a bit. But I'm expecting from November LG for a few months, it's going to be a bit of fun. Right.

Adrian Schofield:And the New York route. How's that going for you, particularly with, with Qantas now on the same route?

Greg Foran:Yeah, it's, it's good for us and I suspect it's good for them. I don't know for sure exactly how it's going, but, you know, I would imagine that a lot of their customers on the plane are probably coming out of Australia and most of our customers are coming out of New Zealand. So we're both attracting 2 different markets. I think I've always got to keep that New York thing in perspective. We all love New York. It's adults' Disneyland, let's be fair. Who doesn't want to go there? But the reality is we do— we go there 3 times a week. In the case of Air New Zealand, we're doing 500 flights a day. So it's interesting. It's good. We're happy we're there. We're fortunate that we have a geography that allows us to do that route nonstop to get to the East Coast. But at the end of the day, it's one sector. We do thousands of other flights. So we keep it in perspective. Right. OK.

Adrian Schofield:There's plenty of stuff I wanted to get to, but we're starting to run out of time. But I did want to touch on, from the product perspective, there's been a lot of attention on the proposed Skynest product, which is the bunk-like beds in the economy cabin that people can book. I'm just curious to hear your thinking on that and whether it's kind of risky to be that innovative with that sort of product.

Greg Foran:Well, I think what you touch on there gets to DNA and culture. And, you know, we have a strong desire in Air New Zealand to represent our country. Now, it just so happens that we are 51% owned. That doesn't actually, you know, we don't spend any time really thinking about that apart from when we're doing a capital raise or paying a dividend. The rest of the time, what we do feel is a very strong responsibility to represent our country at the highest level. And Don't throw an All Black question at me because I'm still recovering from last week.

Adrian Schofield:Okay.

Greg Foran:But it's sort of in that realm. And, you know, as Air New Zealand goes, we think as the country goes. So we have a responsibility to be innovative, to have a go at things, to be brave. And, you know, you could sit down and do all the work you want on Sky Nest or Sky Couch or various other things we do and go, well, you know, maybe, maybe you shouldn't and it doesn't make sense. Look, we're going to throw it on some planes. None of us are smart enough to know exactly how it's going to work out. We like the idea that it's first. It's going to be produced in New Zealand. I think it's good for the country. And I like, I like the fact that we have a bit of swagger and have a go at stuff. And sometimes it's not going to work. When it does, it's great. And then have a shot at something else. So that's really what it's about. And we'll see how it goes.

Adrian Schofield:Right. And speaking of innovation, I'm very interested in your plan to start a commercial demonstration flight using electric or hybrid aircraft. Can you talk about sort of where you're up to with that and why you're pursuing it?

Greg Foran:Yeah, look, you know, it's exactly the same thing, isn't it? You know, I think anyone here who understands the mechanics of sort of an electrical aeroplane knows that it's not really a viable commercial solution. I think the The amount of people that you can get on one at the moment is about 9. And that's Eviation, which we've had a look at. And I've seen the plane, actually sat in it. But it's the beginnings of a journey. And I'm a great believer in the experience curve. So, you know, get in early, test something, see how it goes. It's not going to cost you a lot of money, but you're going to learn a lot. And the solution for us is not actually to have a fleet of electric planes at this stage. Probably technology is going to get them better, but they need to be carrying a lot more than 9 people. But we'll get a couple, we'll actually use them for freight, and it will help us understand a lot more about them, to understand the infrastructure that's required. It's part of our DNA and our brand. But the real prize for us is to work closely with someone to solve a green hydrogen electric plane. Because that is interesting and there's a number of players out there. You know, one that comes to mind that we've been, been having a close chat with is Universal Hydrogen and they've already had one up in the air. You know, they put one on a Q300 in Moses Lake. We like that because we've got a turboprop fleet of 50-odd planes. And that is a viable solution for people, you know, that are moving in groups of sort of 50, 60, 70, less than an hour's flight. But once again, you've got to, you've got to work out how you're going to produce all this hydrogen, how are you going to move it, what's the infrastructure. But we know that if we start now, in 7 or 8 years, we know that hopefully we've got a a viable solution for what is a very good turboprop fleet in the country.

Adrian Schofield:Right, okay. And so for this, the initial commercial demonstration, you mentioned it's probably going to start as freight, and I guess does it then perhaps move into a limited passenger sort of trial? And how close are you to sort of choosing a producer to work with?

Greg Foran:Pretty close. We're working in terms of picking out which which route we're going to fly. So we're out there chatting to airports at the moment. And I think we're a pretty close team in terms of picking who we're going to use. But I don't think we've— you know, we're down to a shortlist. So I'm not going to stick my foot in it and do that. But I think it's a matter of months away.

Adrian Schofield:Great.

Greg Foran:Does it expand into passengers? Not sure at this stage. But once again, I like the approach that we're taking, which is learn, take another step, take another step, learn. We have a sense of where this is going. We don't have the final destination exactly locked in, but we know the general direction and that's how we get on and do stuff.

Adrian Schofield:Right, okay. And further to the fleet question, I would like to squeeze in one fleet question if I can. You recently added another leased 777, but I think beyond that you have no more widebodies coming until like September, October next year when the next 787s are coming. Is there a possibility you might look to add some more widebody lift in the interim?

Greg Foran:Yep. Yep. And you know what, it's all down to this wonderful industry which is just so variable, isn't it? Are we out of any challenges that might be coming with Rolls-Royce and their engines? Probably not. We've spoken about Pratt Whitney. You know, the other Friday night I was, I just got home and I got a text message to say that we had a 787 that had been sideswiped by a truck. So that's parked up waiting to get repaired and I've learnt that You don't fix carbon fibre planes over a weekend. It takes quite a while. So, you know, we've, we've got a business at the moment where the rubber band is stretched reasonably tight in terms of fleet. We've got some pretty impressive utilisation rates on widebodies and jets and turboprops. And when I talk to some of my compatriots around the world, they go, we can't believe you're flying those planes that many hours. So we could, we could do with a little bit more, which is why we've taken the dry lease. We'll look for more sensibly. But the other side of that equation is be bold in thought and cautious in deed. So I think it's an industry where you don't want too much because then you're flat out trying to work out what you're doing with all this capacity. So we'll continue to look at that. We're reasonably comfortable with, with how we're feeling at the moment, appreciating that at any point we're going to get another sideswipe. Right, okay.

Adrian Schofield:And, um, as just a couple of final questions, um, has there been any point over the last 3 years where you've regretted your decision to come into the airline industry?

Greg Foran:Absolutely not at any stage have I ever regretted it. You know, you learn the most in the most difficult times. That's just a fact that we all experience. In a lot of ways, I am actually glad that the industry has had this degree of turmoil. It's forced us to think about things in a different way. And I'll give you a good example of it. You know, when you're sitting in the international arrivals hall in Auckland and it's like December the 20th and there's 15,000 bags looking for a passenger. You either fix it, and I mean fix it, or you're in a real heap of pain. When you have a flood in Auckland Airport and then 2 weeks later you have a cyclone go through and in both cases the airport shuts for 24 hours and there are 100,000 disrupted passengers, you either rethink how you deal with disrupts or you've got a real problem on your hands. So I actually quite like the way that this crisis has forced us at Air New Zealand to rethink how we do things. And, you know, it's cute to say, well, we're going to build back better, but as I often say to the team, you get one point for talking about, you get 9 points for doing. So we do want to build back better. Make sure we do.

Adrian Schofield:Right.

Greg Foran:Make sure that we have the best solution for a lost bag in the world. Because I am never going through that situation again that we faced at Auckland Airport. It's not fair on customers, and it sure as heck ain't fair on our staff. So fix it. If we hadn't had that crisis, I can guarantee you the change would have been incremental and slow. So, you know, if there's a lesson in any of this, use that crisis to force change in your business, to set a new standard and to make your organisation even better than what you could have ever believed it was.

Adrian Schofield:Never waste a good crisis, as Peter Harbison always said.

Greg Foran:Exactly.

Adrian Schofield:I know you said not to ask you about the World Cup, but ScrewTurner did mention that his pick was not Australia. Do you have a pick for the World Cup?

Greg Foran:Up the Waz.

Adrian Schofield:Up the Waz.

Greg Foran:Which means nothing to the audience here, but let me explain it to you probably. I'm not even sure how this came about, but the Warriors in the NRL are playing— they got to the final 8, which is a big deal. It's been a number of years since they've been there and a number of weeks ago as they were nearing the end of the season someone came up with this, up the waz. So it's actually a bit of a thing that's doing the rounds in New Zealand at the moment including some of our flight crew on the plane having completed the safety briefing will finish with up the waz, which the customers really love. But But yeah, let's hope they do get up this weekend. I think they're playing Newcastle and we'll see how they go. As for the Rugby World Cup, I have no comment. Okay, very wise.

Adrian Schofield:Okay, if you can please join me in thanking Greg for some very interesting insights into Air New Zealand. Thank you. Thank you, Greg.

Greg Foran:Thank you, Adrian.

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