Air NZ vs Qantas: Inside the ground war
At the end of March, just a few days into lockdown, Air New Zealand’s internal communications staff hit send on an email to their 12,500 colleagues they never thought possible.
The airline would be slashing a third of its staff and – incredibly – it would become a ‘‘domestic airline with limited international services’’.
A day later, it was announced to the media. As the public digested the news, some were frustrated: how could they wave the white flag so early?
Its main rival Qantas, on the other hand, declared it would keep all staff – and essentially put its business in a holding pattern ready to pounce when air travel resumed.
Qantas’ long-serving CEO Alan Joyce didn’t flinch, saying: ‘‘We have one of the healthiest balance sheets out there and we will have plenty of liquidity to last a very, very long time.
‘‘Nobody has been made redundant, this is about getting our employees ready for the aircraft to come back, that may be six months, that may be nine months, but we know it will come and we’ll have to put these aircraft back into service.’’
Other airlines around the world adopted a similarly bullish approach.
In April, just a few days after Air New Zealand announced its domestic transformation, American Airlines announced it would resume flights to Auckland in October this year.
It appears there were two distinct paths airlines were taking. Slash and burn and get ready for a leaner existence. Or maintain your staff and readiness, and hope for a short disruption – then pounce.
Air NZ’s approach felt very un-Kiwi. It’d taken decades for the country to build an airline that was the envy of the world. How could we just chuck that all away, and assume we’d become a domestic airline when others were talking a strong game about international flying later this year?
The pressure on Air NZ’s new boss, Greg Foran, would have been immense. Across the other side of the Tasman, you had Joyce – one of the most experienced airline CEOs in the world – talking about getting his international fleet back in the air, perhaps this year.
On the other hand, Foran – a very experienced CEO but airline rookie – wanted to relaunch Air New Zealand as a domestic operation. The stakes were enormous.
If Foran was right, the airline would be downsizing early, preserving as much capital as possible, and then begin rightsizing the airline to return to profitability as soon as possible. He didn’t want as many marbles to play with; he wanted to play fewer marbles well.
If he was wrong, and international travel returned this year – it would be a devastating blow for the company and his leadership. Qantas would be poised to return to flying its global network, while Air New Zealand would have gutted its operations.
What made the decision particularly hard is that there is no playbook for coronavirus. Could a game-changing test or treatment pop up, and mean international travel may return in a matter of months?
Now, almost three months on from Air New Zealand’s momentous ‘downsize’ decision, Qantas has buckled under the pressure – announcing plans to follow Air New Zealand’s lead and make 6000 staff redundant.
If Qantas was in a holding pattern; it ran out of fuel and returned to the ground to rethink its strategy.
There seems to be a growing consensus international air travel may not return to normal for years. Qantas is still in a strong position, but its strategy has changed.
It turns out, Air New Zealand’s move was the right one. Foran and his team’s intuition were spot on. Now, it’s three months ahead of its main rival in cementing its new future.
However, Air New Zealand is likely to face long term headwinds that could give itself a disadvantage over the likes of Qantas.
By next year, we could see three types of countries emerge in a new Covid-19 normal: 1) Covid-free countries 2) Countries with low case numbers, where outbreaks are tolerated and managed
3) Countries that have uncontained outbreaks
New Zealand’s goal is squarely option one; very few countries are chasing a similar elimination strategy. Most seem to aim for option two.
Few people will argue that eliminating the virus was the wrong move; we’re very fortunate. However, when your goal is perfection, dealing with other imperfect countries when it comes to air travel becomes hard.
So, Air New Zealand’s hopes of going ‘‘hard and early’’ reviving its international operations could be its biggest challenge. And one that is largely outside its control.