LONDON METROPOLITAN UNIVERSITY

COURSEWORK
(REPORT)
By

Nikola Georgiev
Student ID: 07059973

Email: nik_singerstr@yahoo.com

OPERATIONS

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Introduction

The following report evaluates the operational activities of Air New Zealand. Air New
Zealand is the national carrier of New Zealand and is part of the Star Alliance Group.
Detailed examination of the company financial position have been reviewed, as well as key
operational activities examined, such as routes evaluation, passenger load factors,
employees productivity, operational statistics, operating fleet, company strategy, etc.
Competitor performance analyzes has been compared, followed by conclusion.

Route Structure

Air New Zealand has its route structure divided into domestic and international flights
(http://www.airnewzealand.co.nz/).

There are over 550 flights per day to 27 domestic destinations – more than any other airline.
The routes include the following cities:

Kaitaia, Kerikeri, Whangarei, Auckland, Tauranga, Whakatane, Rotorua, Hamilton, Gisborne,

Taupo, Napier, New Plymouth, Wanganui, Palmerston North, Masterton, Wellington, Nelson,
Blenheim, Westport, Hokitika, Christchurch, Timaru, Oamaru, Wanaka, Queenstown,
Dunedin, Invercargill;

The international flights of the airline are divided into three geographical parts – Europe, Asia
& Australasia and the Americas.

Air New Zealand operates direct flight on its own to London, but uses code share
flights with its partners to other European destinations (mainly UK, Ireland and Germany),
such as Manchester, Edinburgh, Glasgow, Dublin, Belfast, Amsterdam, Brussels, Vienna,
Munich, Frankfurt, Dusseldorf, Berlin, Hamburg;

Australasia part of the world is again served directly by Air New Zealand and its code
share partners. Destinations include Sydney, Brisbane, Gold Coast, Melbourne, Adelaide,
Perth, Cairns in Australia, Tokyo, Osaka, Shanghai, and the new route - Beijing in Japan
(including other internal locations served by partners of the airline), Tonga, Norfolk Island
and others.

North American region is served by Air New Zealand with direct flights to Los
Angeles and San Francisco, USA and the new route - Vancouver, Canada, although many
more cities including New York, Washington, Chicago and Mexico are served by the airline
code share partners.

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The performance on the routes is divided into domestic, long haul and Tasman &
Pacific Island flights and is observed as follows:

Long haul flights load factor has increased over 80%, with passenger numbers up by
12.3%. Air New Zealand route performance has shown great results, which enabled the
company to launch new direct services to Vancouver, Canada and Beijing, China. Business
Premier and Pacific Premium Economy sub classes show good performance. The new
services provided by the airline include gate-to-gate in-flight entertainment and concierge.
The company continues the optimisation of its long haul network.

Domestic flights capacity has increased by 7.5% compared with the preceding year,
although the load factor decreased by 0.7%. The airline operates more domestic routes than
any other airline, which leaded to increase of passenger numbers by 6.1%. Five more Q300
turbo props have been added to the fleet. Air New Zealand has introduced to its domestic
passengers Koru Hour and Space + seats.

Tasman and Pacific Island flights capacity have been decreased by 1.9%, but load
factor have been increased by 2.7%. Air New Zealand has started a huge investment into
upgrading of the inflight entertainment system. The airline merged with Freedom Air.

In general for all routes of the airline, the capacity have increased by 5.4%, while the
passenger load factor have increased by 2.8%, with hugely increased competition on the
domestic market.

Flights Performance

The following table shows 20 of the most active routes for the airline based on the
number of observations made in the time period June 2007 – June 2008.

Departure Arrival # Flights On-time Delay Cancelled Diverted

Code City Code City Rating Operated Codeshare % Avg Max Flights Flights

AKL Auckland WLG Wellington 975 0 85% 12 178 4 0% 0 0%

(3,8)

WLG Wellington AKL Auckland 903 0 88% 11 174 6 0% 0 0%

(4,2)

CHC Christchurch AKL Auckland 826 0 88% 11 147 5 0% 0 0%

(4,3)

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AKL Auckland CHC Christchurch 805 0 86% 12 198 8 0% 0 0%

(3,8)

SYD Sydney AKL Auckland 226 0 76% 18 195 8 3% 0 0%

(2,5)

AKL Auckland SYD Sydney 223 0 71% 16 140 6 2% 0 0%

(2,4)

AKL Auckland ZQN Queenstown 153 0 93% 11 162 0 0% 0 0%

(4,5)

ZQN Queenstown AKL Auckland 152 0 85% 14 235 1 0% 0 0%

(3,8)

BNE Brisbane AKL Auckland 144 0 94% 25 179 0 0% 0 0%

(3,7)

AKL Auckland BNE Brisbane 138 0 81% 17 170 0 0% 0 0%

(3,1)

AKL Auckland MEL Melbourne 108 0 56% 19 129 0 0% 0 0%

(1,6)

MEL Melbourne AKL Auckland 107 0 82% 17 113 0 0% 0 0%

(2,7)

AKL Auckland LAX Los Angeles 103 0 80% 15 74 0 0% 0 0%

(3,0)

SYD Sydney CHC Christchurch 92 0 83% 34 279 1 1% 0 0%

(1,9)

DUD Dunedin AKL Auckland 88 0 79% 15 159 0 0% 0 0%

(3,3)

AKL Auckland DUD Dunedin 86 0 93% 18 93 0 0% 0 0%

(3,6)

CHC Christchurch SYD Sydney 81 0 91% 15 115 1 1% 0 0%

(4,2)

NAN Nadi AKL Auckland 67 0 76% 23 94 0 0% 0 0%

(1,8)

AKL Auckland NAN Nadi 67 0 77% 24 101 0 0% 0 0%

(2,1)

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LAX Los Angeles AKL Auckland 64 0 93% 18 45 0 0% 0 0%

(3,7)

Source: http://markets.ft.com/tearsheets/performance.asp?s=nz:AIR

The following tables show the arrival/departure performance of all flights of Air New Zealand.

Air New Zealand Flight Arrival Performance

Average Historical Flight Delays 6 min

Less than 10 min 72 %

10-30 min 20 %

30-60 min 5%

more than 60 min 3%

Air New Zealand Flight Departure Performance

Average Historical Flight Delays 9 min

Less than 10 min 68 %

10-30 min 23 %

30-60 min 6%

more than 60 min 2%

Source: http://www.airport-la.com/airlines/Air-New-Zealand.html

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Operating Fleet

Aircraft Type June 2006 2007 June 2007 2008 June 2008
movement movement

Boeing 747- 8 - 8 - 8
400

Boeing 777- 5 3 8 - 8
200ER

Boeing 767- 7 (1) 6 (1) 5

300ER

Airbus A320- 12 - 12 - 12
200

Boeing 737- 14 - 14 2 16
300

ATR72-500 11 - 11 - 11

Saab 340A 13 (10) 3 (3) -

Bombardier 8 8 16 5 21
Q300

Beech 16 1 17 - 17
1900D

Total 94 1 95 3 98
operating
fleet

Source: Air New Zealand

The following table shows the new aircraft orders that will be added to the fleet of Air New
Zealand

Aircraft Type FY09 FY10 FY11 FY12 FY13

Boeing 777- - 3 1 - -
300ER

Boeing 787-9 - - - 3 2

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Bombardier 2 - - - -
Q300

Beech 1900D 1 - - - -
Source: Air New Zealand

Operating Statistics

The following tables shows the operational statistics of the airline for year ending June 2008
compared with the preceding period. Statistics have been divided into short haul operations,
long haul operations and general group operations (http://www.airnewzealand.co.nz/).

Short haul operating statistics

June 2008 June 2007 Movement*

Passengers 11.2 m 10.7m 4.5%

ASKs 14,748m 14,588m 1,1%

RPKs 11,334m 10,980m 3.2%

Load Factor 76,9% 75,3% 1,6pts

* Calculations based on numbers before rounding

Long haul operating statistics

June 2008 June 2007 Movement*

Passengers 2.0m 1.7m 12.3%

ASKs 22,243m 20,525m 8,4%

RPKs 18,015m 15,894m 13,3%

Load Factor 81,0% 77,4% 3,6pts

* Calculations based on numbers before rounding

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Group operating statistics

June 2008 June 2007 Movement*

Passengers carried 13,2m 12,5m 5,6%

ASKs 36,991m 35,113m 5,4%

Load Factor 79,3% 76,5% 2,8pts

Yield (cents per 13,0 12,9 0,2%

RPK)

* Calculations based on numbers before rounding

Group Operating Performance

The following graph shows the percentage performance of the load factor and yield
movements for the period July 07 – June 08 (http://www.airnewzealand.co.nz/).

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Source: Air New Zealand

Employee Performance

Air New Zealand’s customer service staff are well known for their warmth and cheeriness
and they are empowered to go the extra mile for their passengers. All cabin crew are
professionals, satisfying every need of the passengers on board, making Air New Zealand
one of the most favorable airlines in the world by passenger voting. Probably the most
successful of conversions from legacy airline to a full service low cost format has been Air
New Zealand. This enabled the airline to make some cost reductions including staff cuts.
Approximately 40% of the management staff was cut after the takeover of Ansett Australia
back in 2001. Rapid management decisions in operational staff have been made in 2006 in
order to restructure the airline activities. Currently the airline employees 10,975 people,
operational and management staff. Through personal and professional development
initiatives, airline and retail discounts, employee benefits and performance related incentives,
the airline aim to encourage its employees to work hard and wear the Koru with pride. Air
New Zealand retains its people because they feel they couldn't get the same exposure,
responsibility and recognition elsewhere. Resilience, foresight and innovation are key to this,
and regardless of where Air New Zealand fits into people career strategy they have a
compelling track record in developing future leaders and managers.

The following graph shows the productivity of Air New Zealand employees.

Source: Air New Zealand

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 $37m extra cost savings are achieved in 2008

 $361m per annum are being delivered from business transformation initiatives
already implemented

Financial Performance

Financial Overview

The following graph represents the financial position of Air New Zealand.

Source: Air New Zealand

Fuel Hedging*

 For the first half of FY09, approximately 74% of the fuel has been hedged with the
average ceiling price at US$104 per barrel of WTI crude oil

 The second half of FY09, approximately 38% of the fuel has been hedged with the
average ceiling price at US$127 per barrel of WTI crude oil

*Fuel hedge position as at 18th August 2008

Risk Management/Currency Hedging

 2009 US Dollar operating cash flow exposure is approximately 90% hedged at an

average NZ$/US$ rate of 0.76

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General financial overview

$1.3bn cash on balance sheet at year end with gearing of 45.5% (7, 6% percent
improvement), Average fleet of 6.5 years, 2 X Boeing 747-400s sold and leased back

The following is a snapshot of the financial statement of Air New Zealand for operations.

From the statement above, we can calculate the operating ratio using the formula –
operating expenses / operating revenue: 3,720/4,667 = 0.79X100=79%

The following graph represents the key influences on the company profitability.

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Source: Air New Zealand

Generally, we can conclude that that the airline has a strong financial position and
competitive strengths in core markets.

Strategy

Priorities(http://www.airnewzealand.co.nz/)

The general priorities strategy of Air New Zealand includes closely matching of supply to
demand, becoming leader in the chosen market, introducing short haul innovations, long
haul focus on service and sales strategy, growing of non – revenue sources, becoming the
world’s leading environmentally sustainable airline.

Apart from the above, the company focuses on separate strategy for its core business: short
haul, long haul and other business. For short haul operations, the airline priorities include:
domestic airport, inflight and loyalty changes, inflight entertainment for all seats on Tasman
flights, new “Grabaseat” – everyday low fare initiatives, Space+ seats across short haul
international. Long haul operations priorities include: network changes in response to
demand, implementation of fuel efficiency innovations, continuing North Asian network
expansion, building on service and product offering, strategic planning for B777-300ER and
B787-9 (including new orders, etc.). Other business strategies includes optimization of the
core business for Cargo, high utilization of facilities with third party focus for Engineering,
exploring wider applications outside air travel for the airline loyalty programme (airpoints).

Environment

In regards to environment, Air New Zealand strategy is to become the worlds leading
environmental airline. The company strategic plans are to develop biofuels, to work on fuel
efficiency innovations, to adapt environmental management system, to establish voluntary
carbon off-set programme, to create Air New Zealand Environmental Charitable Trust. Air
New Zealand is one of several air carriers working to diversify and secure its energy future
through participation in the Sustainable Aviation Fuel Users Group. That effort includes a
commitment to sustainability criteria for fuel sourcing and commercializing plant-based fuels
that perform as well as, or better than, kerosene-based fuel but with a smaller carbon
lifecycle. The goal is to create a portfolio of next-generation biofuels that can be blended with
traditional kerosene fuel (Jet A) to improve environmental performance. On November 11,
2008 Air New Zealand and Boeing have announced Dec. 3, 2008 as the date for the airline's
sustainable biofuels flight from Auckland using a 747-400 jetliner. Conducted in partnership
with Rolls-Royce and UOP, a Honeywell company, one of the airplane's four Rolls-Royce
RB211 engines will be powered in part using advanced generation biofuels derived from
jatropha. After this flight, Air New Zealand became the first airline to use a commercially
viable biofuel sourced using sustainability best practices.

Source: http://www.boeing.com/news/releases/2008/q4/081111c_nr.html

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Competitors

Air New Zealand biggest regional competitor is Qantas (Australia). As well as Air New
Zealand, Qantas is part of one of the biggest airline alliances One World. Qantas fleet
comprises of:

4 x Airbus A380-800, 6 x Boeing 747-400ER, 22 x Boeing 747-400, 27 x Boeing 767-300ER,

41 x Boeing 737-800, 21 x Boeing 737-400, 11 x Boeing 717-200, 10 x Airbus A330-300,
6 x Airbus A330-200, 21 x Bombardier Dash 8 (200/Q300), 17 x Bombardier Dash 8 (Q400);

Qantas flies to 16 domestic destinations and 21 international destinations in 14 countries

across Africa, Americas, Asia, Europe and Oceania excluding the destinations served by its
subsidiaries. The difference in the route network between the two companies is that Qantas
has South America and Africa to its direct network of services. Hence, Qantas posses better
fleet capacity in order to be able to maintain those routes.

Financial Overview (www.qantas.com.au)

Profit before tax

Qantas mainline profitability fell 76.2%, to AUD199 million.

Qantas profit before tax, 1H09 (to 31-Dec-09)

Source: Qantas

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Yields

Total domestic yield (Qantas, QantasLink and Jetstar) "excluding exchange" decreased by
2.0%. Total international yield (Qantas and Jetstar), excluding exchange, actually increased
by 3.4%. However, with a shift in the Australian dollar of up to 31%, this number does not
provide a great insight into how yields have actually moved.

Capacity reductions

Qantas has made what it describes as "decisive reductions in capacity to mitigate traffic
decline". However, as global conditions deteriorate, these reductions in fact will probably
need to be more "decisive" in the near future.

The reductions include retiring four B747-300s, whose impact will be felt most domestically.

Total capacity in 2009 is to be reduced by 4% compared with 2008 and the planned growth
for the 2009/10 financial year will be cut from 10% to 2%. This implies some acceleration of
withdrawal from service of older equipment, as there is no mention of deferrals of aircraft
purchases.

Cost reduction programme

Qantas is to begin a deeper round of cost cutting, with a new target of AUD1.1 billion
reduction to 30-Jun-10. Savings are to be "reduced growth-related savings" and "reduced
fuel efficiency savings". Meanwhile it expects to achieve the target of AUD550 million
reductions for the full year FY09.

Balance Sheet

Qantas still retains a strong balance sheet, although gearing increased to 52% during the
period. The group retains a cash balance of AUD2.8 billion, with a standby facility of AUD
500 million.

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Qantas group balance sheet at 31-Dec-08

Source: Qantas

II. Traffic highlights

The two brand strategy is again delivering dividends, as can be seen from the respective
performances of the group (including Jetstar) and Jetstar separately.

Qantas Group passenger number growth and passenger load factor: 2005 to 1H2009
(Financial year ended 30-Jun)

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Source: Centre for Asia Pacific Aviation & Qantas Group

Conclusion

Comparing both airlines – Air New Zealand and Qantas, we can conclude that Qantas has a
better fleet capacity and network coverage than Air New Zealand, although this does not
mean it’s more profitable. When comparing both companies’ financial results and statistics,
we can conclude that even with lower fleet and network capacity, Air New Zealand is more
profitable and cost efficient airline than its direct competitor – Qantas. We can also observe
that Air New Zealand has a strategic company management and focus on utilization of
aircrafts, operational activities and general management activities strategy. Another good
opportunity for the company is the fact that its focus on network expansion is in line with
demand – eliminating the possibility of creating non-profitable routes that can create losses.
Overall, the company policy for financial strength and market share proves to be a good
management decision. "We are pleased with the level of profitability, particularly in
light of the ongoing pressures we face from competitors, and the challenge of
accommodating increased fuel costs and excess charges at some New Zealand
airports," says Mr Palmer – CEO of Air New Zealand. Therefore, we can conclude that Air
New Zealand possesses strong financial position, coordinated operational activities in line
with financial cost cuts and strong market share that projects a famous brand name.

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REFERENCES

Websites:

Air New Zealand - http://www.airnewzealand.co.nz/

Qantas - www.quantas.com.au

Flight Performances - http://markets.ft.com/tearsheets/performance.asp?s=nz:AIR

Los Angeles Airport (flight performances) - http://www.airport-la.com/airlines/Air-New-

Zealand.html

Boeing (news) - http://www.boeing.com/news/releases/2008/q4/081111c_nr.html

Centre for Asia Pacific Aviation & Qantas Group - www.centreforaviation.com

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