Air New Zealand Operations Management Report

LONDON METROPOLITAN UNIVERSITY








COURSEWORK
(REPORT)
By
Nikola Georgiev
Student ID: 07059973
Email: nik_singerstr@yahoo.com

O P E R A T I O N S





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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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