End of another affair

Death of one-sided romance with Virgin inevitable, writes Tony Marks

It’s deja vu all over again . . . on the Tasman. Take yourself back to the early 90s. Air New Zealand is losing money on most routes — big money — except on Japan. Despite having a market share on the Tasman exceeding 45 per cent, and return fares of $700-plus, losses are north of $40 million a year. It’s the same for Qantas, a 20 per cent shareholder in Air New Zealand. Drastic times, drastic measures. “Air Share” is born, whereby all seats are pooled, carriers share revenue, and agreement is reached on flight frequency.

Government approvals are given and the great turnaround of profitability begins. Customers are annoyed, having different and varying levels of service, branding is compromised but the need for profit triumphs.

So why a divorce just four years later? Profits had gone from -$50m to +$50m for both carriers and combined market share was 80 per cent.

What was the problem? Primarily a lack of trust, a compromised brand, and from New Zealand’s side a strategically critical route network — 25 per cent of Air New Zealand’s total flying, 5 per cent for Qantas — that needed New Zealanders to feel happy with their national carrier.

In the end, the deal between Qantas and Air New Zealand mattered more to New Zealand. Trust, that critical ingredient of any relationship, became undermined quite rapidly. Some examples: shared routes became dictated by Qantas aircraft deployment —“We will do Sydney-Auckland, you can do WellingtonBrisbane.” Air New Zealand allocated seats fairly between Qantas and Air New Zealand-booked passengers on their aircraft. Qantas put all their booked passengers up front, relegating Air New Zealand’s to the back of the aircraft.

Brand offerings became increasingly differentiated and the continued compromises threatened to undermine the entire marketing platform, including the newly invented Airpoints scheme.

Fast forward to 2018. Premium passengers for Air New Zealand are unable to check in at the premium counters if the flight is operated by Virgin. They’re denied seat selection, too.

Service standards have started to deviate significantly. Branding and market positioning are compromised. Air New Zealand has no representation on Virgin’s board, and shares are sold. Ultimately, there was no prospect for the engagement ring turning into a wedding ring, as probably originally envisaged. No prospect An Air New Zealand 777-200 and a Virgin 737-800 at Auckland Airport. either of a widening alliance similar to that proposed by Ralph Norris with Qantas in 2008. With no clear future, it was ultimately just a matter of time before the relationship collapsed.

Another failed Tasman romance in a history of failed romances. Three so far in 20 years . . . and counting. Too important a piece of the Air New Zealand network perhaps to share with anyone.

Although history says we’d be due another alliance in 2025 . . . stay tuned, do not adjust your sets.