Airline Leader Interview with Air New Zealand
Transcript
Oriel Morrison:Now welcome, good to see you. Thanks so much for coming.
Leanne Geraghty:Thank you.
Oriel Morrison:And sitting on the stage today.
Leanne Geraghty:Great to be here.
Oriel Morrison:It's been a very successful conference so far, so it's great to be here. Leanne, let me ask you about what's happening in the world today in the context of the airline industry. We all know it's a very difficult economic environment. Interestingly enough, IATA has come out and said they're expecting record revenue on on a global level from airlines this year.
Leanne Geraghty:Yeah.
Oriel Morrison:What would you say to that from an Air New Zealand perspective?
Leanne Geraghty:Yeah, so it is a really interesting environment and it's been talked about quite extensively throughout the day today in terms of the fact that, you know, coming outta the pandemic, borders opening, it was a year of good strong demand and now we're probably moving more into a phase of stabilization. From the Air New Zealand perspective, I don't think it's any secret we've had quite a number of headwinds that we've been facing into for a little while now, um, in terms of our aircraft engines. So we are in the unfortunate position of having issues with the Pratt Whitney engines that power our narrow-body 321 aircraft, and then the Trent 1000s that power our 787 aircraft. So, um, we have been and will continue to be balancing those issues to make sure that we can, A, ensure that we have operational resilience, can deliver on what our customers are after, and obviously keep maintaining our schedule. So we've got some headwinds that we're facing into. We're dealing with those. We've got extra aircraft coming into the fleet, 3 777s, and doing a whole bunch of maneuvering around. Couple that with a pretty tough economic environment in New Zealand at the moment. There are headwinds, but as I said, we're facing into those, dealing with those, and we are continuing to push on with developing a whole raft of other things in terms of technology and other infrastructures, customer experiences. So as we come out kind of the other end of the next 12 to 18 months, we're really, really well set up, but very optimistic for the future in spite of all of those things.
Oriel Morrison:We're looking forward to talking about that innovation that you're talking about, because Air New Zealand, of course, has got a fantastic reputation when it comes to innovation, and I know that you've got a lot on your plate at the moment. Just before we move on though, when it comes to the delays that you're experiencing, you are optimistic, you've just said you are still moving forward. How difficult does long-term planning become in a situation like this?
Leanne Geraghty:It does become really difficult. The reality is, you know, we're performing multiples of engine changes that we just wouldn't normally do. We have got at some stages near on $1 billion of aircraft infrastructure on the ground. So, you know, we have a fleet, current fleet of 14 787s, and we've 4 on the ground. The 21s, 20s, we've got 17 and 5 on the ground. So When you look at that from a proportionate perspective, it is quite an impact. And then adding to that, we've had a delay to delivery of our new 787 aircraft, which we're now anticipating receiving at the end of next year. So it is challenging for the teams, but as I said, what we try to do is make sure we've got as much operational resilience in the schedule. We have moved aircraft around to change gauges on certain destinations. So we, we do have a situation where we don't necessarily always have the optimal gauge flying to certain destinations, but still it gives us the capacity to meet demand and keeps that schedule flying and gives customers certainty. So that's really important for us.
Oriel Morrison:Leanne, I wanted to talk about sustainability. Obviously it's very, very important in the airline industry as a whole. Air New Zealand, of course, has made headlines. Around the world, being the first airline to abandon the 2030 climate target. Now, you're the first major airline to do so, but do you expect there to be many others following suit at this point?
Leanne Geraghty:Really interesting question, and we have just— I know everyone's just heard from Kiri and the sustainability panel, and I guess the first point is just to reinforce the fact that our commitment to hitting our targets and taking out emissions is still absolutely there. To the point that Keri made, we just know that given the issues we have with our engines that are flying on those more efficient— or not flying—
Oriel Morrison:Mm-hm.
Leanne Geraghty:On those more efficient aircraft and the delay to the new aircraft, our inability to get the level and degree volumes of SAF that we would need make it particularly difficult for us to meet those targets. So we will set about finding a different way to hit our goals and aspirations in terms of emission reduction. And to be honest with you, I think over time, my personal view is that you will see other organizations, be it airlines or others, come out and actually put their hand up and be transparent and say, we do think it's going to be a challenge to hit.
Oriel Morrison:Leanne?
Leanne Geraghty:the targets we've committed to.
Oriel Morrison:It's interesting you say that because there's already, you know, voices in the industry saying that even the industry standard of net zero by 2050 is not achievable.
Leanne Geraghty:I think it is achievable, but I think there is a huge job to do, as was discussed earlier, just around getting the entire ecosystem on board. It's a huge piece of infrastructure work, um, that needs to be done. We're well placed both here, uh, in Australia and New Zealand, and, you know, You know, there's great opportunities, as the, the, the prior panel talked about, for us to work together and actually, um, be a fast mover in this space, but it's just getting everyone lined up. And then of course there is that regulation and policy piece. From an airline perspective, uh, we do need, uh, it to be quite a, a level playing field in terms of the use of SAF and mandates and what have you. Otherwise it becomes competitively really difficult. when you consider, you know, SAF can cost multiples of 5 in terms of, yeah, current fuel sources.
Oriel Morrison:Is it now without doubt that SAF is the answer?
Leanne Geraghty:I think for Air New Zealand and New Zealand, for us, I do think it is absolutely the answer. I mean, we're a very small nation at the bottom of the world, and so our purpose is to connect New Zealanders with each other and to the world, and it's critical You just can't, there's no other way for people to effectively travel, you know, outside of New Zealand. You need flying, long-haul flights. So I do think SAF is critical for us to achieve those emission reduction targets and couple that with next-gen aircraft, which you heard from ATR earlier today. New Zealand is really well placed for the use of next-gen aircraft simply because of the size of the country and the geography. So So those 2 things combined are really core to, yeah, being sustainable into the future.
Oriel Morrison:So this is part of the innovation that we were talking about earlier. I'd like to hear from you a little bit more about next-gen aircraft. You've got your demonstrator aircraft that's ready to go sort of first quarter of next year.
Leanne Geraghty:Yeah, so we're partnering with Beta with the Alia CTOL aircraft, and so that will be performing demonstration or demonstrator flights early next year, and we're working in conjunction with NZ Post. So it will be literally carrying NZ Post and cargo between Wellington and Marlborough and performing demonstration flights. So really excited to have that. I mean, it's a very, very early step. All going well, you know, that we'll see a bit more of that aircraft potentially in 2026, but it really is the first step on our journey. for next-gen aircraft in the domestic fleet.
Oriel Morrison:What do— what role do you see these kind of aircraft actually playing, you know, as we move forward? I mean, as you said, if everything goes well, um, and it actually hits the market 2026?
Leanne Geraghty:Uh, I think they play a really important role. Um, that particular aircraft that I've just spoken about is an all-electric aircraft, uh, so obviously a totally different source of fuel, totally different aircraft to be flying. Um, so it will have major implications and benefits. Um, it enables the possibility of opening up new routes, whether it be that particular aircraft or next-gen aircraft. The reality is, um, they will provide a whole new, uh, range of optionality in terms of routes across New Zealand. So, um, really important and critical as we move forward.
Oriel Morrison:What about the role of hydrogen? When it comes to flying?
Leanne Geraghty:Well, I think we heard a little bit about hydrogen this morning, and I'm by no means the expert on hydrogen. But yeah, there's a lot of, I guess, infrastructural things around hydrogen to bring that to life in terms of flying that need to be worked through. But I am definitely not the best person to be talking about hydrogen.
Oriel Morrison:But you are perfectly placed to talk about innovation. So when you look at what you're doing, you've got a number of different projects that you're working on at the moment. What are you most excited about?
Leanne Geraghty:Um, look, there's a lot of things to be excited about, to be honest. And when I talk about innovation, it can be in all different facets across the airline. So I talked earlier about our proof of concept with kiosks for customers to check in on, and that's super exciting because that's just takes it to a whole new level in terms of the speed and ease of processing in the airport environment. Super excited about retail transformation. So we've been working extensively over the past 2 years in terms of the industry offer and order, which is a full industry transformation and change to the ecosystem. So we've got a lot of the background work done there and moving that forward is very exciting. We've talked about next-gen aircraft.
Oriel Morrison:Mm-hmm.
Leanne Geraghty:So it'd be great to have that demonstrator flying. We've got a whole raft of new things going on just in terms of how we use AI. I talked a little bit about that on the last panel session and how we use it more fully throughout the business. I referenced 120 proof of concepts, so we'll start to move through those and see how we can bring them to life and where the efficiencies and benefits are. We've got a whole range of new, I wouldn't say necessarily innovation, but they're new things for Air New Zealand. So after, you know, 12 or 13 years of the same uniform, we've got a new uniform coming at the start of next year. We've already started work on increasing the size of our Auckland International Flagship Lounge and creating a new proposition there. So that's all underway. There's a lot going on.
Oriel Morrison:A lot happening.
Leanne Geraghty:Yeah.
Oriel Morrison:When it comes to AI, can you talk about that a little bit more and your 120 sort of things that are lined up?
Leanne Geraghty:Yeah.
Oriel Morrison:What sort of feedback are you getting when you roll AI out? I mean, is it ultimately almost all positive? Is there a lot of pushback against the risks of using AI in the airline industry?
Leanne Geraghty:So we're obviously incredibly careful with how we use it. And that's why we've taken a relatively, I would say, conservative approach to it all. But where we have put it into play and where we have put some of those proof of concepts into place, the results have been incredibly positive. I referenced our contact center and 1 in 5 of those service conversations using AI to assist, and the team love it. So we've actually put that into production now and it's rolled out across both our internal teams and partners in that space. The AI for food waste is incredible because, and helping us determine what customers do want to eat and what they don't want to eat. So it tells us down to what meals are kind of how much of it's eaten, what's untouched on the tray. So we can really zero in and understand our customer preferences and design service offerings around that. We've also used it from a cargo perspective, so whereby we've been able to speed up the way in which we answer customer inquiries around movement of cargo. There's a vast range. Marketing is another area, you know, that we're using it quite a lot in, in terms of trying to develop ways in which we can speed up the marketing campaign setup, but then obviously because marketing and how we present in market is very, very important to us as an airline, and we have our own kind of unique personality. Yes, you do. We put that human kind of layer over the top of it, but you know, you get efficiencies from it, cost savings, waste reduction, loads of great outcomes.
Oriel Morrison:And you're doing some interesting trials on the use of Wi-Fi.
Leanne Geraghty:Yep, so we will go to trial with Starlink on a couple of our domestic aircraft later this year is the plan, and we see that as quite a game changer, just the width of what Starlink will bring. So super excited to have that underway, and yeah, look forward to seeing the results of that. But we kind of have the belief that Wi-Fi is table stakes now. We offer, and have done for a long time, free Wi-Fi on our international flights, so you're now looking to expand that proposition domestically.
Oriel Morrison:Well, we've talked a little bit about the economic environment, you know, being quite a difficult one, and this is not just an Australian-New Zealand situation, obviously this is a global situation, but you're still pushing quite hard on your Asian strategy, you know, talking about Japan and, and, you know, other places Seoul, of course, in Asia. What's your expectation for growth around Asia, and where does India fit on, fit into that story as well?
Leanne Geraghty:Yeah, yeah, so from Air New Zealand's perspective, North America and Asia are kind of our core north stars, I guess, in terms of the international network. It's really interesting, the North American market, it's no surprise, I think, I mean, I've been in the airline game for 30 years now, and last year was the largest capacity increase we saw into New Zealand from North American carriers. So competition was intense, and naturally, as you would expect when you see that level of capacity increase, demand just didn't keep up with the seats available in market. So it's been really interesting. We're seeing that moderate now, and we that that will continue to be the case as everyone kind of, you know, readjusts their networks. Asia has been incredibly good for us, so as you've pointed out, we've put quite a significant increase in capacity into Asia, particularly into Japan and places like Bali, which are really hot destinations for Kiwi travellers at the moment. With some of those destinations destinations, of course the exchange rate helps enormously also, um, so I think that's obviously a little bit of a catalyst for the demand there. And then markets like Shanghai, I mean, we've been in Shanghai for some years now. We didn't stop flying through COVID, we continued with cargo services the entire time, and so our passenger operation into the likes of Shanghai also has quite a strong cargo element. But having said that, we also have probably around 130%, uh, capacity on pre-COVID from Chinese carriers into New Zealand currently, um, so again there is a lot of competition.
Oriel Morrison:And, and just going back to the India part of that equation.
Leanne Geraghty:Oh, India, yes, India. So India, we saw, um, quite significant growth between India and New Zealand, again coming out of the pandemic. A lot of VFR traffic from the Indian market, and we work really closely with our partner Singapore Airlines to move traffic from India over Singapore, and we'll continue to do so. It is a market that's really interesting. We'll be watching it quite closely in terms of how the demand peters out now that strong VFR kind of 12 months has has come to an end, and we're moving into a more normalised environment. But yeah, it's definitely a growth market. The other thing I would say about India, recently the New Zealand government increased visa fees for both China and India markets into New Zealand. So you put all of those things, and along with the IVL, so you put all of those things into context, they obviously impact demand over time also. So we'll be watching it really closely.
Oriel Morrison:So when we're talking about geography, we should touch on Europe as well. well. I mean, is that still part of the longer term?
Leanne Geraghty:Yeah, so look, we— it's no secret we exited London, which we'd flown to for many, many years, during COVID We had announced our exit from London prior to COVID, but that accelerated the situation. Again, we work really hand in hand with a number of our alliance partners, both United Airlines and Singapore Airlines, to send traffic over Singapore and North America, and we find that has been working incredibly well. There is no doubt there is very strong demand for UK-Europe out of the New Zealand market, so I guess it's one of those markets where, you know, clearly with our aircraft situation at the moment, we're not in a position to do too much right now, but we, like any airline, continue to assess markets and keep a very close eye on, you know, potential opportunities into the future.
Oriel Morrison:Would you reopen Chicago before opening a new, a new route?
Leanne Geraghty:Interesting question. I mean, Chicago is a really good route for us, and it really pained us to have to suspend it, but quite frankly and transparently, it was the least disruptive option out of a, out of a bad bunch of options. We obviously fly to multiple gateways in North America, and we were therefore able to still provide services in conjunction with United Airlines to Chicago and re-accommodate our customers that had already booked. We would have to weigh up whatever new destination it was we were looking at flying to, and then obviously our aircraft situation. So I really couldn't definitively answer that question.
Oriel Morrison:So if we bring it a little bit closer to home and take a look at the Australia-New Zealand route and obviously Virgin coming back to the table.
Leanne Geraghty:Yes, so recently obviously announced our arrangement with Virgin, which is great to be back working with them. So that is basically enabling customers here in Australia to book on us through Virgin. It enables the earn and burn of Velocity points and also for eligible customers' use of our lounges. So yeah, really positive to have that back in play.
Oriel Morrison:Well, what sort of market do you expect Australia to be moving forward? I mean, are you— when it comes to levels and passenger numbers and so forth, what's the potential for growth now?
Leanne Geraghty:The trans-Tasman market has been core to Air New Zealand's operation. I mean, we've been in business for almost 85 years now. and it has been, you know, a cornerstone of the airline. So we very much and very strongly will continue to compete and ensure that we cement our position in the trans-Tasman market. We are seeing actually quite good demand and results out of Australia to New Zealand. We see, I think, you know, it was alluded to earlier today, As things normalize, there's a necessity for a bit more market activity and stimulation, but markets are responding well to that. So yeah, we're, we're quite encouraged by the trans-Tasman market.
Oriel Morrison:Now, as we discussed at the start of our conversation, obviously the airline has been hit with a number of delays, you know, be it engine or deliveries, aircraft deliveries and so forth. Talk to us, and this is a question I was asked earlier actually, about the Skynest stacked Your sleeping berth?
Leanne Geraghty:Yes.
Oriel Morrison:Yeah, yes, they've been delayed also, your refit?
Leanne Geraghty:They have. So, well, actually, probably another airline first. Most airlines— well, I'm pretty sure we are the first ones to do this. We are actually going to retrofit our existing 787 fleet before our new 787 aircraft arrives at the end of next year. So from next month, our first aircraft will go in and it will be fitted out with our brand new in-cabin product, and that will be, all going well, back out and into the schedule by the end of January. And we have a schedule which will see our entire 787 fleet be retrofitted with the new product over the course of the next 2 years, so by the end of 2026. So with those retrofits, they won't come with the Skynest product. That product comes with the new 787 aircraft that we will take delivery of at the end of next year. Super excited to have that come into the fleet. There's been so much talk about it and it has gained so much coverage. We think it's a game changer offering for customers, basically enabling customers no matter what cabin they're travelling in to have a LifeLad experience on our, particularly on our long-haul sectors. such as New York and Chicago when we're flying back there again. So yeah, really looking forward to bringing that product to life.
Oriel Morrison:Yeah, aside from the adults, I'm sure you're going to have some very grateful parents when they shut their kids away. So Leanne, I know that you started off our conversation by talking about the fact that you're very optimistic. Let me ask you, turn it on its head slightly, what keeps you up at night right now?
Leanne Geraghty:I think it is making sure that we are minimising the level disruption to our customers. So like all carriers, we are absolutely focused 150% on delivering to our customers. They're the core of what we do and why we're here. And so we've got really strong targets like all other carriers around OTP, and whether that be arrival, departure, turn times, cancellation rates. Near and dear to my heart is the contact centre at calls into my area of the business. And we've gone from literally multiple hour wait times a year ago to the vast majority of calls being answered in under 2 minutes these days. So being able to deliver to customers and see that change and turnaround is super important. And when you have disruption and you're continually maneuvering the schedule, just making sure that you are minimising the impact on people as much as you possibly can is the thing that does kind of keep my mind ticking over a lot.
Oriel Morrison:Yeah. Thank you so much for joining us today, for being here. It's absolutely a pleasure to talk to you today. Ladies and gentlemen, please give Leanne Geraghty a round of applause.
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