Air NZ’s Cam Wallace

Flying through the storm

For Cam Wallace, 2020 started off with plenty of promise. Sure, for the self-confessed cricket tragic there was the disappointment of another test series humiliation across the Tasman, but the Air New Zealand revenue chief had a lot to look forward to at work.

New chief executive Greg Foran was about to start at the company, which was humming along nicely, consolidating recent international expansion and preparing in October to launch the most ambitious longhaul flight in its 80-year history: Auckland to New York non-stop.

“We were looking forward to the new leadership, a new strategy and continuing to grow as an entity and organisation, focusing a lot on leadership development, focusing a lot on the existing markets we had and how we could make them more profitable,” he says.

Inbound tourism was growing strongly in the summer peak and Kiwis continued to book overseas trips in record numbers.

Air New Zealand’s profits had levelled off in the past year, but “we were looking forward to the second half of our financial year which was looking pretty positive,” Wallace says.

“It didn’t pan out that way, obviously.”

Wallace has spent nearly two decades at the airline in a variety of senior roles, his team bringing in $6 billion in group revenue during a typical recent year.

But as what was then a mystery virus spread from Wuhan, China throughout January, it was clear this wasn’t going to be a normal year.

The executive team met two to three times a day as the scale of the crisis cascaded.

First Air NZ scaled back on Shanghai flights, then flew the charter rescue flight from Wuhan. Next came the suspension of Shanghai flights, followed by taking the axe to the entire international network as demand plunged.

Air New Zealand had expanded rapidly overseas in the past five years and now it was in trouble.

Today, six months into the worst economic crisis to hit aviation Wallace — who was the face of Air NZ for most of that time — told the Weekend Herald it was when Covid-19 started spreading in the United States that the pressure intensified.

“When we started to see the pandemic taking hold in the States and the response by governments globally to shut down borders, it became quite clear that international markets would close quite quickly,” he says.

Government warnings urged New Zealanders to return home and Wallace was active on Twitter, detailing the rapidly dwindling options to transit through longhaul hubs. “For us it was about how do we get as many Kiwis home as quickly as we possibly can?” When Prime Minister Jacinda Ardern announced on March 19 that the borders would be closed to all but residents and citizens (at a time when there were just 200,000 coronavirus cases worldwide) that’s when executives in the Air NZ crisis centre knew they were facing a real struggle.

“It was going to be deep and it was going to be long and structural for us, so that was really the defining moment,” he says.

Wallace started with Air New Zealand in 2001, the second-worst year so far for modern airlines. The near-collapse of Air NZ after a bad investment in Ansett Australia, compounded by the terror attacks in the US and then subsequent aviation shocks including the Sars pandemic (largely confined to Asia) in 2003, and the Global Financial Crisis which developed in 2007, all turned out to be a curtain raiser for Covid-19.

“When international borders closed, a lot of people internally asked: is this like Sars, is this like 9/11, is this like Ansett? It's literally taking all those massive industry events we've had over the past decade or so, bringing them together and they would still be 10 to 15 per cent of the impact of this.”

Like other businesses, Air New Zealand had a pandemic response playbook but it was not designed for something the size of Covid-19.

“We didn't have one which saw us losing 99 per cent of our revenue, having international borders closed and having this massive uncertainty about when things will change — it is really challenging us in terms of the staff but also in terms of the resilience of the business because you know you just get swamped by the intensity of it.”

Early on, Foran and the executive made what Wallace describes as a painful but necessary call. At least a third of the airline’s 12,500 staff would have to go. Unlike Australia and the United States, there was no legislative provision to furlough staff on pay, and although the airline has claimed more than $70 million in wage subsidies, the difficult job of firing and farewelling staff during a pandemic got under way in April.

Wallace's overseas-based team were among the first to go and he says those initial conversations with many people he knew well were a low point of the past six months for him.

Scores of deeply committed sales staff abroad in his division went; international travel had just dried up. In North America the workforce was slashed from 57 people to three.

“I found that particularly challenging,” says Wallace. “Having to go on to Microsoft Teams and tell them that we don’t see a pathway out of this for a while and we would have to be releasing them. I found that was the most tough,” says the 49-year-old married father of three.

Not only were staff made redundant by video conference; many farewells were held that way too. “I mean a really, really difficult part of this event is that at Air New Zealand we’ve always had a style with people [who] leave with a degree of theatre.”

Kind & confident

Wallace emphasises that what he has been through is far different from the experience of those who have lost their jobs, and he has appreciated the support of those around him, his airline peers and people in the wider business community.

“I’ve been really quite surprised about how many people have approached me and asked me how I was going personally, which has been quite refreshing,” he says.

He specifies the business bosses who offered support over the past few months: Steve Jurkovich from Kiwibank, Jason Paris from Vodafone and Jolie Hodson from Spark.

“I don’t think that would have happened 10 years ago — people reaching out and just wanting to know whether I wanted to chat or have a talk about the intensity of what was happening.” There's always been an off-field camaraderie among most airline types, and the commercial rivalry which can be fierce was buried during the pandemic, Wallace says.

With borders closed, the competitive dynamic was gone and he got feedback from friends at United Airlines, Singapore Airlines and at Qantas.

“So you could go ring up once a week and talk about the challenges they were having in Australia or challenges they’re having in Chicago and about the relative tactics and strategies that we were using to get through it personally,” he says.

Airlines overseas have — or will — shed tens of thousands of workers, and discussion with other airlines had helped with how to best manage this with departing staff, “but also the staff that are remaining with the airline and how we motivate them and show them a pathway towards a brighter future.”

He concedes that with more than 4000 Air New Zealand staff leaving, morale is a challenge.

“I feel a deep responsibility to those people, friends and mates and colleagues who have now gone,” he says.

“I think in any airline anywhere around the world, the expectation is when 30 per cent of your workforce leave you’ve got tremendous operational and commercial challenges. That's always gonna be tough, you’ve got to rebuild that.”

Wallace — talked about as a contender for the top job after Christopher Luxon’s resignation and for big roles across the Tasman — is irrepressible in good times. And that hasn’t changed much in these dreadful days. While there’s a bit of “if you don’t laugh you’d cry” about it, that underlying positivity remains.

Wallace says rebuilding morale is a long-term project.

“We’ll do it through providing great service to our customers and through caring for our people. And that’s going to be our focus for the next months and years.”

Cam to the slaughter

Wallace’s Twitter feed during the depths of lockdown kept followers updated on quickly changing operations — laced with gallows humour about how few flights and passengers there were — and he became known to a wider audience as he fronted the airline’s belated response to fury over credits and refunds.

As anger grew, so did the frequency of Wallace’s media appearances and meetings with Consumer NZ, leading one travel industry insider to observe it was “like a Cam to slaughter”.

Most passengers don’t pay the extra for fully refundable tickets. Instead, amid the confusion and near impossibility of contacting Air New Zealand, they were offered credits instead. The airline, bleeding cash and having turned to the Government for a backstop $900m loan, put it starkly: refunding all those tickets could wipe it out financially.

Wallace says it could have done much better.

“We had a material impact and a lot of feedback and I think that was a pretty intense period for everyone at Air New Zealand. On the front line we had our contact centre [staff ] who were literally swamped by thousands and thousands of calls.” Some customers were happy to take the credit, but some were “disappointed” they didn’t get a refund.

He says the emotional connection that Kiwis have with the airline can be a big positive when things are going well. “But when you are seen to be making a call, that affects a whole bunch of people. It can affect your brand but we think we’ve bounced back a bit from that now.” While some customers have said they are still having problems and are confused by the system, Wallace says it had defused the problem.

“We think we’re starting to rebuild that trust again.” After upheaval in the executive in June, Wallace is now the chief commercial and customer officer, with a myriad of responsibilities, and says it was appropriate that he fronted what was a rearguard action over credits.

“The refunds and the revenue in the commercial part of the business is my responsibility, so it was appropriate that I did that, and I was happy to lead it. But it probably took too long, getting into the marketplace and communicating our position.”

Shifting goalposts

Throughout the pandemic, the operating environment for airlines has been changing at jet speed. With pressure on this country’s isolation facilities — and those across the Tasman — Air NZ is still having to make rapid operational calls.

The airline has had to suspend selling international tickets for weeks and this week was dealing with tighter limits on numbers into Australia.

“It makes it pretty fluid actually and it means our operations team led by Carrie [Hurihanganui] have to be focused on having a level of flexibility,” he says.

“I have to say we are getting used to it now but it’s becoming a bit of a new normal for us.” The airline is 52 per cent owned by the Government, with the possibility of that stake growing, and must work closely with ministers, especially with travel bubble announcements possibly coming soon.

Wallace says the 16-strong Boeing 777 fleet is grounded, some here and some heading overseas for storage, so its international flights across the Tasman, to the US and Asia are operated by Boeing 787s.

“The majority of that flying is to serve our cargo customers. We do have some customers on board, depending on how many spots are available in managed quarantine.”

Two out of three

Close to 30 airlines have failed or filed for bankruptcy protection. More will follow and Wallace says the aviation sector has changed for good.

How airlines entered the crisis — and their ownership — will determine if and how they will emerge.

If they went in with a weak balance sheet, a heavy reliance on the corporate market and a weighting towards international flying, then they will struggle for longer.

He says Air NZ, with $1 billion in the bank and primarily a leisure carrier, does well on two fronts but is vulnerable because of its skew towards international flying.

But the success of New Zealand in so far containing Covid means one part of the operation is spooling up fast.

Its domestic services make up about a third of its operation and its recovery has exceeded expectations. It is closing in on 80 per cent capacity compared to the same time last year, all the more remarkable as the now-absent international tourists usually fill about 20 per cent of domestic seats.

“That’s been a pleasant surprise for us.” Even more encouraging is the recovery of the higher yielding corporate market — now back at around 65 per cent — in spite of the widespread adoption of video conferencing this year.

“While we still have the Zoom effect, it’s starting to be more of a complementary product than actually a strong direct competitor so we’re getting increasingly confident about the resilience of our domestic market.” Compared with many domestic markets, New Zealand has rebounded strongly. Australian domestic services are running at about 9 per cent year-on-year and that’s meant emphasis on getting more Jetstar capacity up in New Zealand.

The Qantas Group’s low-cost carrier is building its schedule back up to 80 per cent, which Wallace says is good for his airline too.

“They’re strongly focused on low

We'll [rebuild] through providing great service to our customers and through caring for our people. Cam Wallace

fares; we’ve got to be competitive with them so it’s good for us to get this level of normality.” While airline traffic sank back to 1960s levels at times this year, Wallace is confident it will return to something approaching recent levels, but airlines will be forever changed.

“The market impact of Covid is so significant it will change everything.”

In the aftermath of 9/11, security changed the way passengers passed through airports, and after the global financial crisis there was a mass consolidation of US airlines and then a tremendous amount of unbundling of products.

“After Covid I think there will be a deeper focus on alliances, there’ll be a big focus on what we call social confidence, and that is getting customers travelling internationally and them having the comfort to jump on a plane and know that the plane is clean and efficient, and that they’re going to travel with a degree of comfort.”

One big structural change will be new revenue management tools. The current complex algorithms are no longer relevant because they rely on ticket price trends — which have ended.

“That machine is broken and will have to be completely rebuilt,” says Wallace.

Airport and onboard products will change as well.

“What we’re doing is looking at what we call 15 stages of the customer journey and saying in a post-Covid world, what does that look like?

“I do think there’ll be quite deep structural changes to the market, and it will become tougher for airlines that aren’t connected to governments in some way, shape or form.”

Wallace says the key for his team at Air New Zealand is confidence.

“We’ve talked a lot about compassion as we’ve gone through this change, we’ve talked a lot about resilience, but we’ve also been trying to pivot to this thing called confidence.

“We’ve got a bit confident about our future, we’ve got to be confident about our network, and we’ve got to be confident that the authorities and the governments will find a way ultimately to open borders.”